Congressional small business committee supports action on “business activity” taxes

This bipartisan action, somewhat uncommon in an election year, is a welcome development. Legislation to make clear that states cannot put these income-based taxes on firms that have no office or other physical presence in their states passed the House Judiciary Committee in 2006 but did not reach the House floor. The bill has been re-introduced this year in both the House and Senate.

NAFEM, working with a coalition including the National Association of Manufacturers (NAM), strongly supports this legislation. While only a minority of NAFEM members have been hit with these out-of-state “business activity” taxes, more states are moving in this direction, and those states already levying these taxes are becoming more active in tracking down firms which sell their states, particularly those who sell through manufacturers’ representatives. Fines are steep.

“Small businesses face unique challenges competing in today’s economy,” Velazquez and Chabot wrote. “Generally, they have less access to capital, are more susceptible to economic downturns, and are more harmfully impacted by regulatory and administrative rules when compared to larger organizations. Thus it is imperative that we are mindful of the impacts that tax policy, whether it is at the local, state, or federal level, has on our nation’s small businesses.”

The Congressional Small Business committees do not have authority to approve legislation, but often serve to bring attention to issues needing action. The next step must be up to the House Judiciary Committee.