Certainty and Uniformity: The Standards (Testimony Before Congress on H.R. 5267, the Business Activity Tax Simplification Act of 2008)
Special Report No. 162
• States are shifting tax burdens to out-of-state companies with an aggressive interpretation of business tax obligation. This trend is causing significant economic and administrative problems.
• Businesses are left uncertain about where they will be subject to tax, suppressing investment and disrupting interstate commerce.
• BATSA legislation would establish that businesses could only be subject to business taxes in states where they have property and employees for at least 15 days in a year. This “physical presence” requirement is a binding legal precedent, but many states are effectively enforcing “economic presence” standards that trigger tax obligations where customers are located, not where the company’s property and employees are located.
• Estimates of multi-billion dollar losses associated with BATSA legislation are based on a flawed survey of 34 states, with divergent answers due to different state interpretations of revenue impacts. Additionally, the revenue forecast ignores offsetting revenue increases, such as from throwback rules.
• The benefits of living in a state accrue to the people and businesses that reside there. When a state starts reaching beyond its borders to tax out-of-state companies, it is admitting that its state government services are a product in-state residents are unwilling to buy at their current cost.
• Co-sponsors of both parties spoke about the importance of clarity in the law and congressional action to resolve the issue.