Tax Foundation to Testify before Congress Tomorrow on Aggressive State Revenue Collections

April 12, 2011

Tax Foundation Director of State Projects Joseph Henchman will testify tomorrow in the House of Representatives on state tax strategies and the proposed Business Activity Tax Simplification Act of 2011. The Act is sponsored by Rep. Bob Goodlatte (R-VA), Rep. Bobby Scott (D-VA), Rep. Sheila Jackson Lee (D-TX), and Rep. Jeff Duncan (R-SC).

Issues under consideration will include limits on the power of states to tax individuals and corporations that are not physically present in the state. Tax authorities and state legislatures have a natural incentive to shift their state’s tax burden away from their own residents (and voters), thus potentially burdening the free flow of interstate commerce. At various times in the nation’s history, Congress has intervened to curb the aggressive excesses of state tax policy, and tomorrow’s hearing will consider whether such an intervention is again called for.

Said Henchman:

Calling in the federal government to intervene in state affairs should never be done lightly, and the goal of any federal involvement should simply be to ensure that state policies are not harming the national economy. The concern over states overreaching with discriminatory tax laws, however, is as old as the Founding Fathers – and given recent developments in many states, as relevant a concern today as ever.

One of the greatest areas of concern in current state tax policy is with the decision by about half the states to adopt an “economic nexus” standard for business activity taxes, whereby businesses that have no property or employees within the state must nevertheless pay these taxes, such as corporate income taxes or gross receipts taxes. This is an historically anomalous expansion of state taxing power that eventually leaves both taxpayers and businesses worse off.

The hearing, before the Subcommittee on Courts, Commercial and Administrative Law of the House Judiciary Committee, will start at 1:30pm in Room 2141 of the Rayburn House Office Building. You can watch the hearing here at 1:30 p.m. tomorrow, and the full testimony will also be posted on our website tomorrow.

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