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House Committee Approves Inter-State Business Tax Bill

by Leroy Baker, Tax-News.com, New York

30 June 2006

The United States House Judiciary Committee has approved legislation which aims to simplify the application of business taxes across state lines.

The Business Activity Tax Simplification Act resolves 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.

Goodlatte says his bill will bring predictability to an unpredictable tax environment for businesses and states, so that these entities can make more informed and rational decisions.

"This legislation sets specific guidelines for when an out-of-state business may be charged a tax for doing business in a state," Goodlatte said in a statement.

"This legislation focuses on allowing the Internet and the commerce that it facilitates to expand, by eliminating excessive taxes that harm on-line growth," he added.

To accomplish this, the bill would create a “bright line” test to determine when an out-of-state business would be obliged to pay taxes to a jurisdiction.

The bill would also establish a physical presence test, such that a state could only tax an out-of-state business if the out-of-state business has a physical presence in the taxing state.

A physical presence is defined as leasing or owning real or tangible property in the state or assigning one or more employees in the state for more than 21 days.

It is thought that the bill will be voted upon by the full House by the end of the summer.

http://www.house.gov/goodlatte/batsummary109.htm http://online.wsj.com/article/BT-CO-20060628-714415-search.html?KEYWORDS=tax&COLLECTION=autowire/6month http://tax-news.com/newsdb/story/story_update.asp?storyid=21281

 












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