Washington, DC, July 26, 2006--The National Retail Federation today urged the House to approve legislation that would limit states’ ability to impose business activity taxes on out-of-state companies.
“Clarification of the business activity tax nexus standard is important to NRF and our members,” NRF senior vice president for government relations Steve Pfister said in a letter to Majority Leader John Boehner, R-Ohio. “Over the past several years, we have seen a dramatic increase in state efforts to collect tax revenue from non-resident businesses. As a result, our member companies have been unfairly assessed with business activity taxes in jurisdictions where they have no property or employees. Retailers have already wasted an enormous amount of resources fighting unfair and unlawful state audits and resulting litigation, and we foresee a continuation of that unfortunate trend.”
“Enactment of H.R. 1956 would ensure fairness, minimize litigation, promote a level playing field for taxpayers by providing a bright-line standard governing taxation, and foster the kind of legally certain and stable business climate that encourages investment, expands interstate commerce, grows the economy and creates new jobs,” Pfister said.
The House is scheduled today to consider H.R. 1956, the Business Activity Tax Simplification Act, sponsored by Representative Bob Goodlatte, R-Va. The bill would establish a “bright line” test barring states from imposing business activity taxes on a company unless it has a physical presence in the state for at least 21 days each tax year. Physical presence would be defined as being physically located in the state or having employees there, leasing or owning tangible personal property or real estate, or using the services of another person in the state to establish or maintain a market in the state, subject to certain exceptions. Activities in connection with the purchase of goods or services and meetings with government officials for purposes other than selling goods or services would not count.
The measure also spells out specific situations that would not trigger the physical presence standard: a company Internet site being accessed by residents of the state; use of an Internet service provider physically located in the state; and use of the company’s intangible property such as logos, patents or trademarks in the state.
NRF has argued for some time that Congress should provide a bright line physical presence standard that is fair to both government and businesses, and also “clear and simple” for government to administer and businesses to comply.
Business activity taxes include a wide range of levies imposed on businesses, including corporate income taxes, franchise taxes, gross receipts taxes, capital stock taxes, net worth taxes, single business taxes and business and occupation taxes. States have tried to impose one or more of the taxes on companies that don’t have an office or store in their state but ship products into a state, solicit orders or otherwise have a “business activity.” A 1959 federal law prohibits states from placing an income tax on out-of-state businesses, but doesn’t address other taxes and applies only to companies selling tangible goods, not services.
In addition to urging passage of the Goodlatte legislation, Pfister urged the House to consider legislation similar to S. 2152, the Sales Tax Fairness and Simplification Act, sponsored by Senator Michael B. Enzi, R-Wyo. That bill, currently pending in the Senate Finance Committee, would help end the disparity in sales tax rules between traditional retail stores, on-line sellers and mail-order merchants.
