BATSA Hearing: Shaken Down by New Jersey on the State Line

February 21, 2008

New Jersey’s disgraceful actions came up in last week’s hearing in front of the House Small Business Committee about H.R. 5267, the Business Activity Tax Simplification Act of 2008 (BATSA). The recently introduced bipartisan bill would prevent states from reaching across their borders to tax businesses that have no physical property or employees within a state. Many states have adopted a theory of “economic presence”-taxing out-of-state businesses because they have customers or “exploit” the market within a state-as a way of exporting tax burdens to non-residents and obstructing interstate commerce. H.R. 5267 would enshrine a “physical presence” rule, limiting taxation only to those businesses actually in the state.

Our blog will post some excerpts from testimony submitted in last week’s hearing. This week, we bring the story of Barry Godwin (courtesy TaxProfBlog), a controller for the Stingray Boat Company of Hartsville, South Carolina. Stingray sells boats to independent dealers, and all transactions occur over the telephone or Internet from South Carolina. They occasionally send dealers to other states but have no office or employees permanently outside South Carolina.

On July 23rd, 2007 I received a call transferred over from our truck fleet dispatcher at 10:15 am. The person on the other end was Ms. Kostak, a revenue agent for the State of New Jersey. I was immediately told that our truck had been pulled over at the weigh station on the interstate highway and could not move until we paid New Jersey for jeopardy assessment taxes. I asked Ms. Kostak why they were doing this. I was told that we had a dealer in the state of New Jersey. This incident was becoming unbelievable, so I asked her to fax me proof that she was who she said she was. I asked what I could do to let the driver go and I was told to pay the New Jersey Division of Revenue money. I asked how much and I was told it depended upon our sales into New Jersey. I looked up the sales for the past seven years as requested and Ms. Kostak quoted me a price of $46,200 to release the truck. I then told her I would need to discuss the issue with our company president. Ms. Kostak told me I had until 1pm that day to get them the money or the truck would be impounded and we would need to make arrangements to retrieve the driver. I asked her, “Can I not send you a check or work something out to let the truck pass through New Jersey?” and I was told to wire them the money.[…]

I told Ms. Kostak that we believed we were operating within the law. Ms. Kostak told me that because our trucks had delivered our boats into the State of New Jersey that this action created nexus. Ms. Kostak reminded me of the deadline to pay them the money or our boats would be impounded. I knew we had boats to deliver into another state and my only choice was to wire the money, which I did. Ms. Kostak had to certify that the funds were in the bank before releasing our property. Finally, at 1:30pm our truck and driver were on the road again.[…]

The manner in which the State of New Jersey acted is commonly defined as extortion. Fortunately, I have never been the victim of a crime in my life. But, that day in July, I believe I was strong-armed by a state of the United States of America. Under the theory that nexus existed, I and my company were treated like someone on the run from the law. This entire episode was an unbelievable manner in which to conduct business. Since that day, we have paid New Jersey almost double the original amount that Stingray “owed” in interest and taxes.[…]

New Jersey’s action of threatening to impound commerce entering the state unless the business immediately pays on-the-spot “taxes” inhibits our national market and undermines economic stability. The ad hoc nature of it, with taxpayers and assessors alike unsure who has to pay what and why, violates the principle of transparency and creates uncertainty that will undermine investment and economic activity.


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