Congress moving to head off proliferation of state business activity taxes
Over the summer, all NAFEM members were urged to write their congressional representatives in support of the full house vote on the Business Activity Tax Simplification Act (BATSA) of 2006 – HR1956.
At least 10 states are currently imposing these taxes – a form of income tax, based on corporate earnings – on firms that ship products into their states as a result Internet-placed orders or developed by independent sales representatives. While action by the various states is inconsistent and often arbitrary, a number of NAFEM members have reported they have been assessed these taxes.
The House version of the BATSA, introduced by Congressmen Bob Goodlatte (R-VA) and Rick Boucher (D-VA) as passed in late June by the House Judiciary Committee Chaired by James Sensenbrenner (R-WI). NAFEM members in Sensenbrenner’s district and others in nearby Wisconsin districts have strongly urged Sensenbrenner to act on this bill, and NAFEM Government Relations Chair David Rolston, CFSP president, Hatco Corporation, Milwaukee, has since met with him to express our appreciation. The legislation would require “nexus” before a state can impose such business activity taxes: meaning having an office or employees in the state for more than a de minimis period.
One earlier version of the bill would have made a firm subject to nexus, therefore to these taxes, if a firm had either an employee or a sales representative in the state. NAFEM immediately flagged this an unacceptable, and the legislation now exempts a firm from nexus as long as its sales representative represents at least one other firm in the state.
With the full House vote anticipated shortly, we’re turning our attention to the Senate Finance Committee.
Over the summer, NAFEM members in Pennsylvania and Tennessee were encourages to write to Senators Rick Santorum (R-PA) and Bill Frist (R-TN) respectively, urging their support for S2721, the Senate version of HR1956. Members will again be asked to write their Senators when the bill leaves committee and heads to the Senate floor.
The Senate bill, introduced by Senator Charles Schumer (-NY) with co-sponsorship by Senators Mike Crapo (R-ID), Tim Johnson (D-SD), John Thune (R-SD), Jim DeMint (R-SC), and George Allen (R-VA), has been referred to the Senate Finance Committee, chaired by Senator Charles Grassley (R-IA). With Congress expected to adjourn for the year in early October, prior to the election, the window for action in this Congress will close. If this opportunity to deny states the ability to impose onerous taxes on firms that have no physical presence in their states is lost this year, it may not recur.