US Business Lobby Urges Congress To Pass Interstate Tax Simplification Measure

by Mike Godfrey, Tax-News.com, Washington

29 September 2005

A lobby group representing several major corporations, including Citigroup and Nike, urged Congress this week to pass a bill aimed at clarifying when companies face corporate taxes for remote sales from other states.

The measure, known as the 'The Business Activity Tax Simplification Act,' which was discussed at a House Judiciary administrative law subcommittee hearing on Tuesday, seeks to resolve the issue of states seeking to collect business activity taxes from businesses headquartered in other states by setting out specific guidelines for when an out-of-state business may be charged a tax for doing business in a state.

Over the past several years, a growing number of states have sought to collect business activity taxes from businesses in other states. The problem is that different states use different standards for determining what constitutes sufficient contacts with a state to justify taxation. According to the bill's sponsor Rep. Bob Goodlatte (R.-Va), this has resulted in businesses being deterred from expanding their presence in other states for fear of exposure to further taxation, and it is becoming a growing concern for internet-based companies in particular.

"Just because a website can be accessed by consumers in a certain state, doesn’t mean that state should be able to collect taxes from the website owner. This legislation focuses on allowing the Internet and the commerce that it facilitates to expand, by eliminating excessive taxes that harm on-line growth," Mr. Goodlatte stated when the legislation was introduced to the House earlier this year.

The proposals have been attacked by the National Governors Association and other state and local government officials, who fear the bill would put a "major strain" on state treasuries, depriving them of some $8 billion in revenues.

However, Mr Goodlatte has cited numerous other examples of "aggressive state actions" and positions against out-of-state companies. For example some states take the position that a business whose trucks pass through the state just a handful of times per year without picking up or delivering goods has sufficient connections with the state to justify imposing business activity taxes on that company. Other states believe that merely listing a phone number in a local phone book in that state is a sufficient connection to justify taxation.

Mr. Goodlatte says that his legislation would benefit both states and business by eliminating grey areas and by establishing "bright lines" regarding what constitutes a physical presence.

"This legislation will ensure that businesses are not subject to double taxation at the state level, which will ultimately facilitate the continued growth of e-commerce, job creation and the overall strength of the American economy," he declared.

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