[House Report 112-257]
[From the U.S. Government Publishing Office]
112th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 112-257
======================================================================
BUSINESS ACTIVITY TAX SIMPLIFICATION ACT OF 2011
_______
October 21, 2011.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Smith of Texas, from the Committee on the Judiciary,
submitted the following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 1439]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 1439) to regulate certain State taxation of
interstate commerce, and for other purposes, having considered
the same, reports favorably thereon without amendment and
recommends that the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for the Legislation.......................... 3
Hearings......................................................... 8
Committee Consideration.......................................... 8
Committee Votes.................................................. 8
Committee Oversight Findings..................................... 9
New Budget Authority and Tax Expenditures........................ 9
Congressional Budget Office Cost Estimate........................ 10
Performance Goals and Objectives................................. 13
Advisory on Earmarks............................................. 13
Section-by-Section Analysis...................................... 13
Changes in Existing Law Made by the Bill, as Reported............ 15
Dissenting Views................................................. 17
Purpose and Summary
The Constitution prohibits a state from imposing any tax on
a taxpayer that lacks a ``substantial nexus'' with the
state.\1\ What constitutes a ``substantial nexus'' with respect
to a state's ability to impose net income or other business
activity taxes (collectively, ``BATs'') upon a business,
however, is unclear.\2\ If read narrowly, the Supreme Court's
1992 decision in Quill Corp. v. North Dakota, which requires
physical presence in the state to satisfy a substantial nexus,
applies only to a state's imposition of sales and use tax
collection and remittance requirements upon taxpayers.\3\ Many
states do read Quill narrowly and impose net income and other
BATs on businesses that lack a physical presence and have a
mere ``economic presence'' in the state.
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\1\See Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 277-78
(1977) (requiring a ``substantial nexus'' for constitutional state
taxation of interstate commerce).
\2\See generally Business Activity Tax Simplification Act of 2011:
Hearing on H.R. 1439 Before the Subcomm. on Courts, Commercial and
Admin. Law of the H. Comm. on the Judiciary, 112th Cong. (2011)
[hereinafter 2011 Hearing]; State Taxation: The Role of Congress in
Defining Nexus: Hearing Before the Subcomm. on Commercial and Admin.
Law of the H. Comm. on the Judiciary, 111th Cong. (2010); Business
Activity Tax Simplification Act of 2008: Hearing on H.R. 5267 Before
the Subcomm. on Commercial and Admin. Law of the H. Comm. on the
Judiciary, 110th Cong. (2008); Business Activity Tax Simplification Act
of 2005: Hearing on H.R. 1956 Before the Subcomm. on Commercial and
Admin. Law of the H. Comm. on the Judiciary, 109th Cong. (2005);
Business Activity Tax Simplification Act of 2003: Hearing on H.R. 3220
Before the Subcomm. on Commercial and Admin. Law of the H. Comm. on the
Judiciary, 108th Cong. (2004) [hereinafter 2004 Hearing].
\3\See Quill Corp. v. North Dakota, 504 U.S. 298, 317-18 (1992).
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States lack a uniform definition for ``substantial nexus''
for BATs. The patchwork of tests to determine whether a
business has ``economic presence'' in a state leads to
considerable uncertainty for businesses attempting to estimate
and reserve capital for their tax liability.\4\ At the 2011
Hearing, the Subcommittee on Courts, Commercial and
Administrative Law heard testimony from a franchisor from
Richmond, Virginia, who suggested that small businesses face
the choice of either engaging a tax advisor at great cost to
determine where the business has a nexus, or waiting until a
tax questionnaire or tax bill appears on the business's
doorstep:
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\4\See 2011 Hearing, supra note 2, at 26-36 (testimony of Corey
Schroeder, Vice Pres. and CFO, Outdoor Living Brands, Inc., on behalf
of Int'l Franchise Ass'n).
As a franchisor, I have very little visibility on what
the nexus rules are in each state and when they change
and why they change. . . . For a small business like
mine, managing this issue is rife with uncertainty
created by this environment. I could proactively engage
another tax advisor and have them go seek out all the
34 states where I have franchisees and determine which
ones would have nexus with me. . . . I could be
passive, which is what I think most franchisors in my
situation do, where we wait for the next franchise
activity questionnaire to come in and we respond to it
accordingly.\5\
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\5\Id. at 27.
H.R. 1439, the Business Activity Tax Simplification Act of
2011 (BATSA), reduces the kind of tax uncertainty Mr. Schroeder
described by confirming that Quill's bright-line ``physical
presence'' standard applies to a state's imposition of BATs.\6\
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\6\See Business Activity Tax Simplification Act of 2011, H.R. 1439,
111th Cong. (2011).
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BATSA has three primary legislative features. First, it
establishes a bright-line physical presence nexus requirement
in order for states to impose or collect net income taxes or
other BATs on multistate enterprises. Second, BATSA updates
Public Law 86-272, enacted in 1959 to prohibit states from
imposing taxes on the net income of interstate sellers of
tangible personal property if the only business activity within
the state consists of the solicitation of certain sales orders,
so that the law applies equally to intangible goods and
services. Finally, it restricts the means by which a state may
apportion the income of a unitary group of affiliated
businesses so that only that portion of the business activity
conducted in a state may be taxed by that state. As secondary
matters, the bill also lists conditions that a business must
satisfy in order to be considered physically present for nexus
purposes and clarifies that each person in a group of
affiliated businesses has legal separateness so that physical
presence may not be imputed.
Background and Need for the Legislation
I. INTRODUCTION
On Friday, April 8, 2011, Mr. Goodlatte (R-VA) introduced,
along with Mr. Scott (D-VA), Mr. Duncan (R-SC) and Ms. Jackson
Lee (D-TX), H.R. 1439, the ``Business Activity Tax
Simplification Act of 2011.'' BATSA is substantially similar to
its predecessors that were introduced in prior Congresses.\7\
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\7\Compare H.R. 1439, with Business Activity Tax Simplification Act
of 2009, H.R. 1083, 111th Cong. (2009); Business Activity Tax
Simplification Act of 2008, H.R. 5267, 110th Cong. (2008); Business
Activity Tax Simplification Act of 2006, H.R. 1956, 109th Cong. (2006);
Business Activity Tax Simplification Act of 2003, H.R. 3220, 108th
Cong. (2003).
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BATSA expands Public Law 86-272, an existing Federal
prohibition against certain state taxation of interstate
commerce, to include taxation of out-of-state transactions
involving all forms of property, including intangible personal
property and services.\8\ Currently, that prohibition applies
only with respect to taxes on sales of tangible personal
property. BATSA also clarifies that the U.S. Constitution
prohibits state assessment of BATs on an out-of-state entity
unless such entity has a physical presence in the taxing state
and sets forth criteria for determining whether an entity has a
physical presence in a state.
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\8\The Committee takes the position that the holding of Quill
applies to all taxes imposed by a state, including BATs.
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II. LIMITATIONS ON STATE TAXING AUTHORITY
Most state taxes fall into four broad categories: taxes on
property; income and other BATs; general and selective sales
and use taxes; and licenses, fees, and miscellaneous taxes. As
sovereign governments, states are generally free to use their
tax codes to collect revenue and encourage or discourage
certain behaviors. For example, states with robust tourism
industries, such as Florida and Nevada, impose high sales taxes
because of the volume of transactions that occur within their
borders. Other states, like New Hampshire, have decided to
impose high property taxes relative to other states but, in
order to attract population and commerce, do not impose taxes
on earned income or sales.\9\
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\9\For a summary of current state tax laws and rates, see Ryan
Forster and Kail Padgitt, Where Do State and Local Governments Get
Their Tax Revenue?, The Tax Foundation Fiscal Fact No. 242 (August
2010), http://www.taxfoundation.org/files/ff242.pdf.
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While a state's authority to set its own tax policy is
broad, it is not plenary. The Supreme Court has inferred from
the grant of power to Congress in the Commerce Clause that
state and local laws are unconstitutional if they place an
undue burden on interstate commerce--a principle commonly known
as the ``dormant'' commerce clause.\10\ The Due Process Clause
of the 14th Amendment also constrains a state's taxing
ability.\11\ An out-of-state business must have a nexus under
both the Due Process Clause and the Commerce Clause before a
state may impose a tax on that business. While the Due Process
Clause requires only a minimum connection between the putative
taxpayer and the taxing state, the U.S. Supreme Court has
determined that the Commerce Clause requires the existence of a
``substantial nexus'' between the two.\12\
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\10\See Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1 (1824) (invalidating
state's grant of monopoly to steamship operator that prevented holders
of Federal steamship licenses from navigating state waterways); Erwin
Chemerinsky, Constitutional Law: Principles and Policies Sec. 5.3 (2d
ed. 2002).
\11\U.S. Const. amend. XIV.
\12\Complete Auto, 430 U.S. at 279.
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The modern, generally applicable test for determining
whether a state tax impermissibly burdens interstate commerce
was set forth by the Supreme Court in 1977 in Complete Auto
Transit, Inc. v. Brady.\13\ Prior to that decision, the Court
employed an approach that scrutinized whether the tax
``directly'' or ``indirectly'' taxed interstate commerce, a
rubric that varied from the test applicable to non-tax state
regulations affecting interstate commerce and that resulted in
confusing and often conflicting results.\14\ The Complete Auto
test provides that a state tax violates the dormant commerce
clause unless it:
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\13\Complete Auto, 430 U.S. at 287.
\14\See generally Chemerinsky, supra note 11, Sec. 5.4.1.
(1) is applied to an activity with a substantial nexus
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to the taxing state;
(2) is fairly apportioned so as to tax only the
activities connected to the taxing state;
(3) does not discriminate against out-of-state persons;
and
(4) is fairly related to services provided by the
state.\15\
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\15\Complete Auto, 430 U.S. at 287.
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III. THE QUILL ``PHYSICAL PRESENCE'' STANDARD FOR
CERTAIN STATE TAXES
While the Complete Auto test is generally applicable to all
state taxes, the Supreme Court has specifically addressed the
``substantial nexus'' prong for scrutiny of state transaction
taxes, such as a sales or use tax. In Quill Corp. v. North
Dakota, the Supreme Court held that a state tax law
impermissibly burdens interstate commerce if it compels out-of-
state entities to collect transaction taxes on its behalf,
unless the out-of-state entity has a physical presence in the
taxing jurisdiction.\16\ In 1987, North Dakota changed its tax
code to define ``retailer'' as a ``person who engages in
regular or systematic solicitation of a consumer market in
th[e] state,'' and changed its regulations to define ``regular
or systematic solicitation'' as consisting of three or more
advertisements within a 12-month period. The state required all
retailers to collect and remit a use tax to the state. Quill
Corporation, an office-supply company incorporated in Delaware
whose only connection to North Dakota was that it sent
catalogues to residents to solicit business, challenged the law
on the basis that it violated the dormant commerce clause.
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\16\Quill, 504 U.S. at 317-18.
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The Supreme Court held that Quill lacked sufficient nexus
to North Dakota to enable the state to require collection and
remittance of the use tax. In doing so, the Court reaffirmed
the ``physical presence'' test for Commerce Clause nexus
previously announced in National Bellas Hess, Inc. v.
Department of Revenue of Illinois.\17\ Accordingly, there is a
bright-line rule that a state may impose a duty to collect and
remit a use tax only on businesses that are physically present
in the state.\18\ However, with respect to Quill's separate
argument that the Due Process Clause of the Fourteenth
Amendment prohibited North Dakota from taxing it because it
lacked certain minimum contacts with the state, the Supreme
Court concluded that Quill ``purposefully directed its
activities at North Dakota residents, that the magnitude of
those contacts are more than sufficient for due process
purposes, and that the use tax is related to the benefits Quill
receives from access to the State.''\19\
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\17\Nat'l Bellas Hess, Inc. v. Dep't of Revenue of Ill., 386 U.S.
753, 758-59 (1967) (declining to depart from bright-line rule requiring
physical presence for taxing nexus).
\18\Quill, 504 U.S. at 317-18.
\19\Id. at 308.
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Quill, if limited to its facts, applies the bright line
physical presence nexus test only to a state's imposition of
taxes that consumers are statutorily required to pay for the
privilege of using or enjoying goods within a state's borders.
It does not purport to establish a rule clarifying
``substantial nexus'' for a state's imposition of net income or
other BATs on businesses that lack physical presence in the
state.\20\ From early dormant commerce clause cases it might
appear that physical presence is the touchstone for at least ad
valorem taxes, but the question of what constitutes physical
presence for other taxes has been somewhat unclear.\21\ In
Northwestern States Portland Cement Co. v. Minnesota, the
Supreme Court found physical presence based on the fact that an
out-of-state company sent salesman into the taxing state to
solicit business.\22\ The Court thus allowed imposition of a
net income tax on the otherwise out-of-state business. This
ruling prompted Congress to enact Public Law 86-272 to clarify
that merely sending traveling salesmen into a state does not
result in physical presence for purposes of satisfying the
nexus requirement of the dormant commerce clause.\23\
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\20\See, e.g., KFC Corp. v. Iowa Dep't of Revenue, 792 N.W.2d 308,
314 (Iowa 2010) (``While `physical presence' may have been a
significant feature, if not a requirement, in the Supreme Court's
Dormant Commerce Clause analysis in early sales and use tax cases,
`physical presence' in the narrow sense does not appear as an important
factor in cases involving state income taxation.'') (Emphasis added.)
\21\See Braniff Airways, Inc. v. Neb. State Bd. of Equalization &
Assessment, 347 U.S. 590, 597-98 (1954) (upholding state tax on airline
that made 18 scheduled flights a day to and from Nebraska despite its
having no other property there).
\22\See Braniff Airways, Inc. v. Neb. State Bd. of Equalization &
Assessment, 347 U.S. 590, 597-98 (1954) (upholding state tax on airline
that made 18 scheduled flights a day to and from Nebraska despite its
having no other property there).
\23\See Pub. L. No. 86-272 (codified at 15 U.S.C. Sec. 381 et seq.
(2006 & Supp. IV)). BATSA amends Public Law 86-272 as described infra.
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IV. ``SUBSTANTIAL NEXUS'' FOR NET INCOME AND
OTHER BUSINESS ACTIVITY TAXES
While Quill defined the boundaries of a state's authority
to impose sales and use taxes on out-of-state businesses, the
precise boundaries of what constitutes a ``substantial nexus''
for purposes of net income and other BATs and, to the extent it
might thereby be applicable, ``physical presence'' remain
unclear. The West Virginia Supreme Court of Appeals recently
held that ``Quill's physical presence requirement for a showing
of substantial Commerce Clause nexus applies only to use and
sales taxes and not to business franchise and corporate net
income taxes.''\24\ The Iowa Supreme Court recently held that a
Kentucky-based franchisor had ``substantial nexus'' to Iowa
because it licensed intellectual property to a franchisee
pursuant to a contractual relationship and the franchisee
erected a sign bearing the licensed trademark on its property,
but did not conclude whether physical presence was required for
business activity tax nexus:
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\24\Tax Comm'r of W. Va. v. MBNA America Bank, N.A., 630 S.E.2d
226, 232 (W. Va. 2006).
As a result, we conclude that the Supreme Court would
likely find intangibles owned by KFC, but utilized in a
fast-food business by its franchisees that are firmly
anchored within the state, would be regarded as having
a sufficient connection to Iowa to amount to the
functional equivalent of ``physical presence'' under
Quill. Furthermore, the fact that the transactions that
produced the revenue were based upon use of the
intangibles in Iowa also provides a sufficient basis to
support the tax under the Commerce Clause.\25\
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\25\KFC, 792 N.W.2d at 324.
Courts in other states, however, have opined that physical
presence is required to satisfy the nexus requirement for all
taxes. For example, in J.C. Penney National Bank v. Johnson,
the Court of Appeals of Tennessee held that ``[w]hile it is
true that the Bellas Hess and Quill decisions focused on use
taxes, we find no basis for concluding that the analysis should
be different [with respect to franchise and excise
taxes].''\26\
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\26\J.C. Penney Nat'l Bank v. Johnson, 19 S.W.3d 831, 839 (Tenn.
Ct. App. 1999), appeal denied (May 8, 2000), cert. denied, 531 U.S. 927
(2000).
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Uncertainties in the law and the costs of compliance with
the numerous and varied state and local tax regimes have
increasingly become a significant burden on businesses. In
addition to the high costs of the taxes themselves, businesses
must also employ accountants to determine whether they are
liable for various taxes and attorneys to defend themselves
against enforcement actions. At a hearing in the 108th
Congress, a representative of Smithfield Foods, Inc.,
testified:
We incur substantial costs to meet our State tax
obligations. On an annual basis we are required to file
860 State income tax returns, 450 sales and use tax
returns, 3,150 State payroll tax returns and 215 real
and personal property returns. This results in various
State payment [sic] of almost $60 million. In spite of
our efforts to comply with the laws of all the States,
we continue to find State interpretations of the
business activity tax to be difficult and
troublesome.\27\
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\27\2004 Hearing, supra note 2, at 36 (2004) (statement of Vernon
T. Turner, Corporate Tax Director, Smithfield Foods, Inc.).
The money spent on these administrative and compliance
costs would be better put to making capital investments,
growing the business, and hiring new employees, who will
themselves bolster a state's tax rolls. Even if a business
reasonably concludes it is not subject to taxation in a state,
it may have to pay penalties if the state ultimately prevails
in an enforcement suit. If the business concludes it is subject
to taxation, it passes along the cost of the tax to consumers.
In either case, goods and services become more expensive. These
burdens are especially trying on small businesses which often
lack the resources to hire specialized tax and legal experts.
Worse still, some states have used very aggressive methods to
collect their taxes. At the same hearing in the 108th Congress,
Smithfield Foods testified that a truck delivering Smithfield
hams was essentially hijacked on a New Jersey highway by the
state's Department of Revenue in an effort to force the company
to pay New Jersey's corporate income tax.\28\
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\28\Id. at 37.
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Recent governance by the Financial Accounting Standards
Board has only complicated the issue. As the Council on State
Taxation, the National Association of Manufacturers, and the
National Marine Manufacturers Association argued in their joint
amicus curiae brief filed in 2007 in support of a petition for
a writ of certiorari from the Supreme Court,
The problem is made more acute by recent tightening of
financial disclosure requirements. In 2006, the
Financial Accounting Standards Board (FASB), adopted
new rules on accounting for uncertain income tax
positions. FASB Increases Relevance and Comparability
of Financial Reporting or Income Taxes: Final
Interpretation Reduces Widespread Diversity in
Practice, News Release (FASB), July 13, 2006 (``FIN
48''). FIN 48 provides uniform criteria for the
preparation of financial statements and expands the
disclosure required regarding uncertainty in income
taxes. FIN 48 mandates a ``reserve'' for 100% of tax
items unless it is more likely than not that the
company will prevail in litigation on those items. This
reserve is of indefinite duration, with interest and
penalties accruing annually.
The abandonment of the physical presence rule along
with the adoption of varying ``nexus'' or ``economic
presence'' standards by different states will create
havoc for the financial statements of publicly traded
companies. Under FIN 48, a company with customers but
no physical presence in a state or locality will be
required to decide whether it is ``more likely than
not'' that it will be deemed, after the fact, to lack a
requisite nexus with that jurisdiction. Otherwise, the
company will be required to accrue the full amount of
any potential tax liability. The ambiguous and evolving
nature of the concept of ``nexus'' makes it extremely
difficult to decide, to a 50% certainty, whether a
company will be deemed to have a nexus in a given state
or locality. Taxpayers in identical circumstances could
reasonably reach different conclusions. As a result,
one taxpayer may accrue a 100% reserve of the potential
tax liability while another identical taxpayer may
reserve little or nothing at all.
The varying and ill-defined ``economic presence''
standards adopted by the states will therefore
frustrate the goal of providing investors with a
realistic picture of a corporation's financial
position. Hence, abandoning the physical presence rule
disserves the purposes of the securities laws as well
as the Commerce Clause.\29\
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\29\Brief for Council on State Taxation et al. as Amici Curiae
Supporting Petitioners at 18-19, FIA Card Services, N.A. v. West
Virginia, 551 U.S. 1141 (2007) (denying petition for certiorari).
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V. DORMANT COMMERCE CLAUSE LIMITS ON APPORTIONMENT
If a state is permitted to collect a net income or other
business activity tax from an out of state entity, it may not
violate the dormant commerce clause with respect to how it
apportions the entity's domestic business activities relative
to the combined group's domestic and foreign business
activities. The question of constitutional apportionment
generally arises in states that require combined income or
business activity reporting for an affiliated group of
entities. To the extent that a state uses combined reporting,
BATSA prohibits the state from taxing the income of an
affiliate that has no physical presence in the taxing
jurisdiction.
Hearings
On April 13, 2011, the Subcommittee on Courts, Commercial
and Administrative Law held a legislative hearing on H.R. 1439
and heard testimony from: Rep. Bob Goodlatte; Rep. Robert C.
``Bobby'' Scott; Corey Schroeder, Vice President and CFO of
Outdoor Living Brands, on behalf of the International Franchise
Association; R. Bruce Johnson, Chairman of the Utah State Tax
Commission, on behalf of the Federation of Tax Administrators;
and Joseph Henchman, Tax Counsel and Director of State Projects
at the Tax Foundation.
Numerous hearings on BATSA's predecessor bills and on the
subject of tax nexus generally have been held in several prior
Congresses.\30\
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\30\See supra note 2.
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Committee Consideration
On July 7, 2011, the Committee met in open session and
ordered the bill H.R. 1439 favorably reported without
amendment, by voice vote, a quorum being present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that there
was one recorded vote during the Committee's consideration of
H.R. 1439. Rep. Chu offered an amendment to delay the effective
date of the bill to the year 2022. By a vote of 7-24, the
amendment was not agreed to.
ROLLCALL NO. 1
----------------------------------------------------------------------------------------------------------------
Ayes Nays Present
----------------------------------------------------------------------------------------------------------------
Mr. Smith, Chairman............................................. X
Mr. Sensenbrenner, Jr........................................... X
Mr. Coble....................................................... X
Mr. Gallegly.................................................... X
Mr. Goodlatte................................................... X
Mr. Lungren..................................................... X
Mr. Chabot...................................................... X
Mr. Issa........................................................ X
Mr. Pence....................................................... X
Mr. Forbes......................................................
Mr. King........................................................ X
Mr. Franks...................................................... X
Mr. Gohmert.....................................................
Mr. Jordan...................................................... X
Mr. Poe.........................................................
Mr. Chaffetz.................................................... X
Mr. Griffin..................................................... X
Mr. Marino...................................................... X
Mr. Gowdy.......................................................
Mr. Ross........................................................ X
Ms. Adams....................................................... X
Mr. Quayle...................................................... X
Mr. Conyers, Jr., Ranking Member................................ X
Mr. Berman......................................................
Mr. Nadler...................................................... X
Mr. Scott....................................................... X
Mr. Watt........................................................ X
Ms. Lofgren..................................................... X
Ms. Jackson Lee................................................. X
Ms. Waters...................................................... X
Mr. Cohen....................................................... X
Mr. Johnson..................................................... X
Mr. Pierluisi................................................... X
Mr. Quigley..................................................... X
Ms. Chu......................................................... X
Mr. Deutch......................................................
Ms. Sanchez..................................................... X
Ms. Wasserman Schultz...........................................
-----------------------------------------------
Total....................................................... 7 24
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Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 1439, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 13, 2011.
Hon. Lamar Smith, Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1439, the Business
Activity Tax Simplification Act of 2011.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Elizabeth
Cove Delisle, who can be reached at 225-3220.
Sincerely,
Douglas W. Elmendorf,
Director.
Enclosure
cc:
Honorable John Conyers, Jr.
Ranking Member
H.R. 1439--Business Activity Tax Simplification Act of 2011.
SUMMARY
H.R. 1439 would prohibit State and local governments from
taxing certain business activities that are taxable under
current law. Specifically, it would prohibit those governments
from taxing certain services, intangible goods, and media
activities unless businesses providing those services have a
``physical presence''--as defined in the bill--in the taxing
jurisdiction.
ESTIMATED IMPACT ON THE FEDERAL BUDGET
CBO estimates that enacting H.R. 1439 would have no direct
impact on the Federal budget. Because the bill would not affect
direct spending or revenues, pay-as-you-go procedures do not
apply.
ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS
H.R. 1439 would impose an intergovernmental mandate as
defined in the Unfunded Mandates Reform Act (UMRA) by
prohibiting State and local governments from taxing certain
business activities. CBO estimates that the costs--in the form
of forgone revenues--to State and local governments would be
about $2 billion in the first full year after enactment and at
least that amount in subsequent years. The cost would far
exceed the threshold established in UMRA for intergovernmental
mandates ($71 million in 2011, adjusted annually for
inflation).
Current law (notably, Public Law 86-272 and related Supreme
Court decisions) prohibits States from levying a tax on the
corporate (net) income of a company whose only activity in the
State is pursuing and making sales that would be filled from
outside the State (e.g., mail order sales). H.R. 1439 would
expand that prohibition to other types of business activity
taxes (BATs), including additional corporate income taxes,
franchise taxes, single business taxes, capital taxes, gross
receipt taxes, and business and occupation taxes. Corporations
currently pay these taxes to a State only if the State can
establish ``nexus'' with the firm. (``Nexus'' is the connection
between a firm and a State that allows the State to legally
impose taxes on the firm and is based on some measure of
physical presence or economic activity in a State.) H.R. 1439
would redefine ``nexus'' and preempt State laws that are
different from that definition. Such a preemption would
constitute a mandate as defined in UMRA and would result in
forgone revenues to State and local governments.
Specifically, the bill would:
LDefine physical presence for firms not based
in a State;
LEstablish a uniform nexus standard
nationwide--an entity would need to be physically
present in a State for 15 or more days to establish
nexus;
LCreate ``carve outs'' from the 15-day
standard that would allow certain industries or
activities (such as media) to exceed the standard
without establishing nexus with a State;
LExpand the prohibitions on taxation in Public
Law 86-272 to include taxes not based solely on the
income of a company (i.e., gross receipts taxes,
franchise taxes, and business and occupation taxes);
LExpand the applicability of Public Law 86-272
to services and intangibles (e.g., the trademark for a
retail store or the patent for a formula for soda); and
LProhibit States that require businesses to
file group returns from imposing BATs on members of the
group that, by themselves, do not meet the standard for
physical nexus.
ESTIMATED DIRECT COSTS OF MANDATES TO STATE AND
LOCAL GOVERNMENTS
CBO estimates that enacting H.R. 1439 would result in
revenue losses for States and some local governments and that
such losses likely would total about $2 billion in the first
full year after enactment and at least that amount in
subsequent years. Those forgone revenues would equal about 3
percent of the total BATs in 2012 and would far exceed the
threshold established in UMRA for intergovernmental mandates
($71 million in 2011, adjusted annually for inflation.)\1\
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\1\In fiscal year 2010, States collected about $700 billion in
total taxes. In the year following enactment, the revenue losses
resulting from H.R. 1439 would total about 5 percent of collections
from corporate income taxes and significantly less than 1 percent of
total tax collections by States.
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UMRA includes in its definition of mandate costs any
amounts that State and local governments would be prohibited
from raising in revenues as a result of the mandate. The
mandate costs of H.R. 1439 would include any taxes that State
and local governments would be precluded from collecting under
the bill. (UMRA's definition of mandate costs excludes
increases in revenues that State and local governments might
raise in reaction to enactment of a mandate.)
CBO estimates that all States and some local governments
would see an immediate revenue loss because they are currently
collecting taxes from firms that, under the bill, would be
exempt from taxation. Subsequently, corporations likely would
rearrange their business activities to take advantage of
beneficial tax treatments that would result from the
interaction of the new Federal law and certain State taxing
regimes. Those changes in business activities would likely
result in additional revenue losses to the States. However, CBO
has no basis for estimating the extent to which such
reorganizations would occur.
BASIS OF ESTIMATE FOR INTERGOVERNMENTAL MANDATES COSTS
CBO used information from a variety of sources to estimate
the State revenue losses that would result from enactment of
this legislation.\2\ Using data from the States, industry, and
the Census Bureau, CBO estimated potential losses based on
current tax collections, the industrial and commercial profile
of State economies, and the structure of State taxing systems.
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\2\Although the bill's provisions also would affect collection of
taxes by some local governments, CBO has not separately estimated the
potential losses for such governments. Relatively few local governments
impose significant business activity taxes.
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States use a variety of rules to determine whether a
company is subject to taxation--that is, if it has nexus--and
if so, how the activities in which that company engages are
taxed. The differences in State taxing systems affect how much
revenue each State or local government would likely forgo under
the provisions of the bill. CBO examined both the
characteristics of the corporate tax structure of each State
and data about the economic makeup of each State in order to
estimate potential revenue losses.
To estimate the costs of enacting H.R. 1439 to State and
local governments, CBO first estimated the total amount of BATs
paid by corporations in each State. Such taxes totaled about
$65 billion in 2011. Since some industries are significantly
less likely to be operating from outside the State than others
(for example mining companies), CBO used information about the
industrial and commercial makeup of States to calculate the
portion of BATs that could be at risk if H.R. 1439 is enacted.
In general, CBO expects that States would lose only a small
percent of BATs--less than 3 percent in the first year after
enactment, nationwide. To calculate losses for 2012, CBO
estimated the likely percentage each State would lose based on
its current tax system and applied that percentage to the BATs
potentially at risk.
The percent of revenues lost by each State would vary
significantly and would depend on the characteristics of each
State's tax system and its industrial makeup. A State that
imposes taxes on companies that make sales in the State--
regardless of whether those companies have property or
employees in the State--would lose a higher percentage of their
BATs than would a State that only taxes companies that have a
physical presence in the State. Similarly, a State that has an
economy that is concentrated in an industry that does not rely
on property or employees in the State to carry out business
activities, such as the information services industry, would
also lose a higher percentage of their BATs than would a State
where the economy relies more heavily on agricultural or
manufacturing industries.
In the absence of this legislation, it is possible that
some State and local governments would enact new taxes or
change the way they tax businesses. Since such changes are
difficult to predict, for the purposes of estimating the direct
costs of the mandate, CBO considered only the revenues from
taxes that are currently in place and actually being collected,
or estimates for changes that are already in statute and that
will be implemented over the next five years.
ESTIMATED IMPACT ON THE PRIVATE SECTOR
This bill contains no new private-sector mandates as
defined in UMRA.
ESTIMATE PREPARED BY:
Impact on State, Local, and Tribal Governments: Elizabeth Cove
Delisle
Federal Revenue: Kalyani Parthasarathy
Impact on the Private Sector: Paige Piper/Bach
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
1439 regulates certain state taxation of interstate commerce
and modernizes Public Law 86-272.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 1439 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(e), 9(f), or 9(g) of Rule XXI.
Section-by-Section Analysis
Sec. 1. Short Title. Section 1 sets forth the short title
of the Act as the ``Business Activity Tax Simplification Act of
2011.''
Sec. 2. Modernization of Public Law 86-272. Congress
enacted Public Law 86-272 in 1959 in response to the United
States Supreme Court's decision in Northwestern States Portland
Cement.\31\ In that decision, the Court concluded that a state
has jurisdiction to tax the net income of a foreign corporation
that maintained an active sales office and sales force within
the State, even though the only activity that the corporation
performed in the state was to solicit sales. Public Law 86-272
prohibits states from imposing a net income tax on businesses
whose activities in their jurisdiction are limited to
soliciting sales of tangible personal property, provided that
the orders for the tangible personal property are approved and
filled from a point outside the state.
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\31\358 U.S. at 465.
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Services and intangibles were not as vital to the American
economy at the time Public Law 86-272 was enacted as they are
now. Also, at that time, almost all states imposed a net income
tax rather than some other type of business activity tax. As
enacted, Public Law 86-272 does not apply to persons that
solicit sales of services or intangibles, and it only applies
to net income taxes, not to taxes such as gross receipts taxes,
margin taxes, or commercial activity taxes that states have
developed to substitute for net income taxes.
Section 2 modernizes Public Law 86-272 by extending its
scope to persons that solicit sales of services and/or
intangibles and by expanding its applicability from net income
taxes to all BATs. Section 2 also adds language to shield from
business activity tax liability persons who enter a state
merely to furnish information to customers or affiliates in the
state or to cover news or other events or gather information in
the state, provided that such information is ultimately used
outside the state.
Sec. 3. Minimum Jurisdictional Standard for State and Local
Net Income and Other Business Activity Taxes. Section 3
clarifies a minimum jurisdictional standard for imposition of
business activity tax. Under the Bill, a person must have
``physical presence'' in a state to be subject to business
activity tax liability there. Under this section, a person has
physical presence in a state if the person's activities in the
state include at least one of the following during a taxable
year: (1) the person is an individual physically in the state,
or assigns one or more employees to the state; (2) the person
uses the services of an agent to establish or maintain a market
in the state, so long as the agent does not perform services in
the state for any other person during the taxable year; or (3)
the person leases or owns tangible personal property or real
property in the state.
Section 3 also clarifies that a person is not considered to
have a physical presence in the state if the person's
activities there are limited to presence in the state (1) for
fewer than 15 days in a taxable year; or (2) to conduct limited
or transient business activity there.
The above protections would not apply to a person that is
incorporated or formed under the laws of the state in which the
tax is imposed.
Section 3 also clarifies that a state retains the right to
use anti-tax avoidance tools, such as the economic substance
and sham doctrines, to prosecute persons engaged in unlawful
tax avoidance. It also clarifies that states retain the ability
to require combined reporting for affiliates.
Sec. 4. Group Returns. Section 4 sets forth a rule for
apportionment that prohibits a state from imputing the net
income or other business activity of a non-present affiliate to
an affiliate with nexus for purposes of enlarging the taxable
portion of the affiliate group's income. In states that
apportion, Section 4 limits the apportionment numerator to the
indicia of economic activity physically present in the state,
while preserving the denominator as the affiliate group's
aggregated economic indicia, as the case may be in each
respective state.
Sec. 5. Definitions and Effective Date. Section 5 sets
forth definitions used in the Bill and makes the Bill effective
as of January 1, 2012. Among other things, it requires that
states treat each person in a group of affiliated persons
separately for tax purposes.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
ACT OF SEPTEMBER 14, 1959
(Public Law 86-272)
AN ACT relating to the power of the States to impose net income taxes
on income derived from interstate commerce, and authorizing studies by
congressional committees of matters pertaining thereto.
TITLE I--IMPOSITION OF MINIMUM STANDARD
Sec. 101. (a) No State, or political subdivision thereof,
shall have power to impose, for any taxable year ending after
the date of the enactment of this Act, a net income tax on the
income derived within such State by any person from interstate
commerce if the only business activities within such State by
or on behalf of such person during such taxable year are
[either, or both,] any one or more of the following:
(1) the solicitation of orders [by such person, or
his representative, in such State for sales of tangible
personal property, which orders are sent outside the
State for approval or rejection, and, if approved, are
filled by shipment or delivery from a point outside the
State; and] (which are sent outside the State for
approval or rejection) or customers by such person, or
his representative, in such State for sales or
transactions, which are--
(A) in the case of tangible personal
property, filled by shipment or delivery from a
point outside the State; and
(B) in the case of all other forms of
property, services, and other transactions,
fulfilled or distributed from a point outside
the State;
(2) the solicitation of orders by such person, or
his representative, in such State in the name of or for
the benefit of a prospective customer of such person,
if orders by such customer to such person to enable
such customer to fill orders resulting from such
solicitation are orders described in paragraph (1)[.];
(3) the furnishing of information to customers or
affiliates in such State, or the coverage of events or
other gathering of information in such State by such
person, or his representative, which information is
used or disseminated from a point outside the State;
and
(4) those business activities directly related to
such person's potential or actual purchase of goods or
services within the State if the final decision to
purchase is made outside the State.
* * * * * * *
[(c) For purposes of subsection (a), a person shall not be
considered to have engaged in business activities within a
State during any taxable year merely by reason of sales in such
State, or the solicitation of orders for sales in such State,
of tangible personal property on behalf of such person by one
or more independent contractors, or by reason of the
maintenance of an office in such State by one or more
independent contractors whose activities on behalf of such
person in such State consist solely of making sales, or
soliciting orders for sales, of tangible personal property.]
(c) For purposes of subsection (a) of this section, a
person shall not be considered to have engaged in business
activities within a State during any taxable year merely--
(1) by reason of sales or transactions in such
State, the solicitation of orders for sales or
transactions in such State, the furnishing of
information to customers or affiliates in such State,
or the coverage of events or other gathering of
information in such State, on behalf of such person by
one or more independent contractors;
(2) by reason of the maintenance of an office in
such State by one or more independent contractors whose
activities on behalf of such person in such State are
limited to making sales or fulfilling transactions,
soliciting order for sales or transactions, the
furnishing of information to customers or affiliates,
and/or the coverage of events or other gathering of
information; or
(3) by reason of the furnishing of information to
an independent contractor by such person ancillary to
the solicitation of orders or transactions by the
independent contractor on behalf of such person.
(d) For purposes of this section--
(1) the term ``independent contractor'' means a
commission agent, broker, or other independent
contractor who is engaged in selling or fulfilling
transactions, or soliciting orders for [the sale of,
tangible personal property] a sale or transaction,
furnishing information, or covering events, or
otherwise gathering information for more than one
principal and who holds himself out as such in the
regular course of his business activities; and
* * * * * * *
Sec. 105. For taxable periods beginning on or after January
1, 2012, the prohibitions of section 101 that apply with
respect to net income taxes shall also apply with respect to
each other business activity tax, as defined in section 5(a)(2)
of the Business Activity Tax Simplification Act of 2011. A
State or political subdivision thereof may not assess or
collect any tax which by reason of this section the State or
political subdivision may not impose.
* * * * * * *
Dissenting Views
INTRODUCTION
H.R. 1439, the ``Business Activity Tax Simplification Act
of 2011,'' would override state law to impose a problematic
standard to determine if a state may tax a business
activity.\1\ This standard, based on whether a business is
physically present in the state, and the bill's other
provisions are onerous for several reasons. The legislation
unfairly favors large, multi-state businesses over smaller
businesses by creating massive state tax loopholes that large
businesses will be able to exploit. Rather than clarifying the
nexus requirement, the bill would engender more uncertainty and
thereby result in more litigation. H.R. 1439, by preempting
state law, would overturn well-settled state tax law practices
and eviscerate state revenues. In essence, H.R. 1439 has a
single objective: to relieve large multi-state and multi-
national businesses from paying state taxes.\2\ The
Congressional Budget Office (CBO) estimates that H.R 1439 will
cost states ``about $2 billion in the first full year after
enactment and at least that amount in subsequent years.''\3\
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\1\A business activity tax is a direct tax on a business for doing
business within the state, and is measured by the amount of such
business or related activity. Generally, both in-state and out-of-state
businesses that are ``doing business'' in a state pay business activity
taxes on the money earned in that state.
\2\Letter from Oregon Governor John A. Kitzhaber, MD to the Oregon
Congressional Delegation (Aug. 29, 2011) (on file with the House of
Representatives Committee on the Judiciary, Democratic Staff).
\3\Congressional Budget Office Cost Estimate, H.R. 1439: Business
Activity Tax Simplification Act of 2011, 2 (Sept. 13, 2011) (emphasis
added).
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Citing these problems and other concerns presented by the
bill, the National Governors Association, the Multistate Tax
Commission, Citizens for Tax Justice, the Commonwealth of
Massachusetts, the Governor of Oregon, the American Federation
of State, County and Municipal Employees (AFSCME), the American
Federation of Labor and Congress of Industrial Organizations
(AFL-CIO), the Communication Workers of America (CWA), the
International Federation of Professional and Technical
Engineers (IFPTE), the National Education Association (NEA),
the American Federation of Teachers (AFT), the Department for
Professional Employees (DPE), the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of
America (UAW), the International Association of Fire Fighters
(IAFF), and the Services Employees Union International (SEIU)
oppose H.R. 1439.\4\
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\4\Letter from Nebraska Governor Dave Heineman, Chair of the
National Governors Association, and Delaware Governor Jack Markell,
Vice Chair of the National Governors Association, to Representative
Lamar Smith, Chairman of the House Committee on the Judiciary, and
Representative John Conyers, Jr., Ranking Member of the House Committee
on the Judiciary (Aug. 4, 2011) (on file with the House of
Representatives Committee on the Judiciary, Democratic Staff); Letter
from Oregon Governor John A. Kitzhaber, MD to the Oregon Congressional
Delegation (Aug. 29, 2011) (on file with the House of Representatives
Committee on the Judiciary, Democratic Staff); Letter from
Massachusetts Secretary of Administration and Finance Jay Gonzalez to
Senator Max Baucus, Senator Orrin Hatch, Representative Lamar Smith,
Chairman of the House Committee on the Judiciary, and Representative
John Conyers, Jr., Ranking Member of the House Committee on the
Judiciary (July 12, 2011) (on file with the House of Representatives
Committee on the Judiciary, Democratic Staff); Letter from Joe
Huddleston, Executive Director of the Multistate Tax Commission to
Representative Lamar Smith, Chairman of the House Committee on the
Judiciary, and Representative John Conyers, Jr., Ranking Member of the
House Committee on the Judiciary (July 5, 2011) (on file with the House
of Representatives Committee on the Judiciary, Democratic Staff); The
Business Activity Tax Simplification Act of 2011: Hearing on H.R. 1439
Before the Subcomm. on Courts, Commercial and Admin. Law of the H.
Comm. on the Judiciary, 112th Cong. 245-247 (2011) (May 4, 2011 Letter
from Robert S. McIntyre, Director of the Citizens for Tax Justice); Id.
at 285-286 (May 4, 2011 Letter from the American Federation of State,
County and Municipal Employees (AFSCME), American Federation of Labor
and Congress of Industrial Organizations (AFL-CIO), Communication
Workers of America (CWA), International Federation of Professional and
Technical Engineers (IFPTE), National Education Association (NEA),
American Federation of Teachers (AFT), Department for Professional
Employees (DPE), International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America (UAW), International
Association of Fire Fighters (IAFF), and the Services Employees Union
International (SEIU)).
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For these reasons, and those discussed below, we
respectfully dissent and urge our colleagues to reject this
seriously flawed legislation.
DESCRIPTION AND BACKGROUND OF H.R. 1439
Under current jurisprudence, a state may impose a tax on a
business if that business has a substantial nexus with the
state, and the tax has some relation to the level of activity
of the business within the state.\5\ Whether a state may levy
and collect a business activity tax on an out-of-state business
depends upon what constitutes substantial nexus. Proponents of
H.R. 1439 contend that substantial nexus demands a physical
presence requirement.\6\ For example, in Geoffrey, Inc. v.
South Carolina Tax Commission,\7\ the Supreme Court denied
certiorari in a case where the South Carolina Supreme Court
found sufficient connection between a Delaware corporation and
the state of South Carolina to justify a business activity tax.
The Delaware corporation's contact with the state consisted
solely of the presence of intangible property.\8\
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\5\Quill Corp.v. North Dakota, 504 U.S. 298 (1992).
\6\``Although we have not, in our review of other types of taxes,
articulated the same physical-presence requirement that Bellas Hess
established for sales and use taxes . . .'', and, ``In sum, although in
our cases subsequent to Bellas Hess and concerning other types of taxes
we have not adopted a similar bright-line, physical-presence
requirement. . . .'' 504 U.S. at 314, 317.
\7\313 S.C. 15, 437 S.E.2d 13, cert. denied, 510 U.S. 992 (1993).
\8\The Supreme Court has denied certiorari in other cases. See,
e.g., Lanco Inc. v. Director, Division of Taxation, 188 N.J. 380, 980
A. 2d 176 (2006), cert. denied, 127 S.Ct. 2974 (2007); A&F Trademark,
et al. v. Tolson, 605 S.E.2d 187 (N.C. Ct. App. 2004), review denied
(N.C. 2005), cert. denied, 126 S.Ct. 353 (2005); Comptroller of the
Treasury v. SYL, Inc. and Comptroller of the Treasury v. Crown Cork &
Seal Co. (Delaware), Inc, 825 A.2d 399 (Md. 2003), cert. denied, 124
S.Ct. 961 (2003). For additional cases, see The Business Activity Tax
Simplification Act of 2011: Hearing on H.R. 1439 Before the Subcomm. on
Courts, Commercial and Admin. Law of the H. Comm. on the Judiciary,
112th Cong. 42-43 (2011) (Written Testimony of R. Bruce Johnson). By
declining to consider these challenges, the Supreme Court has
strengthened the argument that a state's ability to tax a business is
not limited to a physical presence being established.
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According to Professor Walter Hellerstein, one of the
Nation's leading constitutional law experts, economic nexus is
sufficient for purposes of determining whether a state may levy
and collect a business activity tax on an out-of-state
business.\9\ The Supreme Court has held that when a state
levies a tax against a multi-state business operating in its
state, the state does not need to isolate intrastate income-
producing activities from the entire business, but can tax an
apportioned share of the total multi-state activities if the
business is unitary.\10\ To survive a Commerce Clause
challenge, the tax must pass the four-part test established in
Complete Auto Transit v. Brady.\11\ In order to be fairly
apportioned, the tax must be proportional to the business
activities occurring in that state.\12\
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\9\State Taxation: The Role of Congress in Defining Nexus: Hearing
Before the Subcomm. on Commercial and Admin. Law of the H. Comm. on the
Judiciary, 111th Cong. 67 (2010) (Written Testimony of Walter
Hellerstein).
\10\A business is ``unitary'' if the intrastate and extrastate
activities form ``part of a single unitary business''and the out-of-
state values that the state seeks to tax are not ``derive[d] from
`unrelated business activity' which constitutes a `discrete business
enterprise.''' MeadWestvaco Corp., Successor in Interest to The Mead
Corp. v. Ill. Dep't of Revenue., 553 U.S. 16 (2008).
\11\430 U.S. 274 (1977).
\12\To be proportionate, the tax must be both internally and
externally consistent. The Supreme Court defines internal consistency
as the following: ``the formula must be such that, if applied by every
jurisdiction, it would result in no more than all of the unitary
business's income being taxed.'' External consistency requires that
``the factor or factors used in the apportionment formula must actually
reflect a reasonable sense of how income is generated.'' Container
Corp. of America v. Franchise Tax Board, 463 U.S. 159, 169-170 (1983).
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Nonetheless, H.R. 1439, introduced by Representative Bob
Goodlatte on April 8, 2011, ignores Supreme Court precedent and
the vast majority of state appellate courts by equating
physical presence with substantial nexus and imposing such a
standard. The legislation would preempt state law to provide
that an out-of-state company must have a physical presence in a
state before the state can impose a business activity tax. H.R.
1439 even goes further by amending Public Law 86-272\13\, which
restricts the ability of states to impose net income taxes on
interstate commerce.
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\13\Codified at 15 U.S.C. Sec. Sec. 381-384.
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H.R. 1439 contains five principal provisions which would
shift more of the tax burden to local taxpayers and away from
out-of-state businesses. Those provisions include:
Lexpanding the reach of Public Law 86-272 to
apply to services and sales of intangible property of
all interstate businesses.\14\ Currently, Public Law
86-272 prohibits states from imposing a net income tax
on businesses whose activities in their jurisdiction
are limited to soliciting sales of tangible goods only,
provided that the orders for the tangible goods are
approved and filled from a point outside the state.
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\14\H.R. 1439, Sec. 2(a).
Lexpanding Public Law 86-272 to apply to all
business activity taxes.\15\ Currently, Public Law 86-
272 applies only to state net income taxes.
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\15\H.R. 1439, Sec. 2(b).
Lrequiring a 15-day physical presence within a
state before that state can impose, assess, or collect
a net income tax or business activity tax on the
entity.\16\
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\16\H.R. 1439, Sec. 3.
Lallowing a business to have agents (which may
be subsidiaries of the business) in a state acting on
the business' behalf for an unlimited period of time
without creating taxing jurisdiction as long as the
agents are working for two or more principals.\17\
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\17\H.R. 1439, Sec. 3(b)(1)(B).
Lpreventing states from apportioning the
income of a business which does not meet the physical
presence standard as defined by the legislation.\18\ In
an effort to ensure that all income is taxed equitably,
many states currently apportion the income of a
business for tax calculation purposes to the state in
which the income was earned.
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\18\H.R. 1439, Sec. 4.
Taken together, these provisions will severely impact the
collection of state income tax on business activity; create
loopholes favoring large, multi-state corporations to avoid
paying taxes; and undermine the ability of states to pay for
essential services, such as public health and safety,
education, and maintenance of state highways.
A more detailed section-by-section analysis of the
legislation follows:
Sec. 1. Short Title. Section 1 sets for the short title of
the bill as the ``Business Activity Tax Simplification Act of
2011.''
Sec. 2. Modernization of Public Law 86-272. Section 2
amends Public Law 86-272 by striking references to ``tangible
personal property''. The deletion effectively extends the reach
of Public Law 86-272, which prohibits states from imposing
business net income taxes where the company's only activity
within the state is solicitation in connection with sales and
transactions of tangible personal property. Thus, businesses
whose sole activity within a state is the sales of tangible and
intangible personal property and services would be safe from
state business net income taxes.
Sec. 3. Minimum Jurisdictional Standard for State and Local
Net Income Taxes and Other Business Activity Taxes. Subsection
(a) of section 3 prohibits a state from imposing a business
activity tax on any person unless such person has a physical
presence in the state.
Subsection (b)(1) provides that ``physical presence'' is
established only if the business activities within the state
include any of the following: (A) the person has employees in a
state; (B) the person uses a third party to provide services
that enhance or maintain the person's market in a state, unless
the third party performs market-enhancing services for at least
one other business; or (C) the person leases or owns tangible
personal property or real property in a state.
Subsection (b)(2) provides that ``physical presence'' does
not include de minimis physical presence, defined to include a
presence in a state for up to 14 days in a taxable year (or a
greater number of days if provided by state law) or presence in
a state to conduct limited or transient business activity.
Subsection (c) provides that the 14-day limitation will be
prorated if a taxable period is not based on a taxable year.
Subsection (d) provides that the physical presence standard
is a minimum standard for state tax jurisdiction and would not
supersede any law that allows a person to conduct greater
activities without the imposition of tax jurisdiction.
Subsection (e) describes the three situations where the
prohibition of section 3(a) does not apply or does not affect
current law. These situations include when a business is
incorporated or formed under the laws of the state, when an
individual is a resident of the state, or when a business is
engaged in an illegal activity.
Sec. 4. Group Returns. Section 4 limits a state's
apportionment calculation to determine a net income or other
business activity tax liability. Where net income of affiliated
persons are considered, the amount of combined net income
subject to tax shall be computed using generally applicable
methodologies, but if the methodology employs an apportionment
formula, then the denominator shall include aggregate factors
of all persons included in such combined net income and the
numerator shall include factors attributable to the state of
only those persons with physical presence in the state. In
other words, section 4 would ensure that a state would not be
allowed to include income from affiliates of a business which
do not have physical presence in the state when calculating the
income of that business for tax purposes.
Sec. 5. Definitions and Effective Date. Section 5 defines
certain terms used in the Act.
This section also provides that the legislation becomes
effective for taxable years beginning on or after January 1,
2012.
CONCERNS WITH H.R. 1439
I. H.R. 1439 WILL DEVASTATE STATE REVENUES
H.R. 1439 will severely impact state revenues in the short
term and progressively in the long term. The CBO estimates that
H.R 1439 will cost states ``about $2 billion in the first full
year after enactment and at least that amount in subsequent
years.''\19\ This impact would far exceed the Unfunded Mandates
Reform Act threshold of $71 million in 2011.\20\ For
perspective, $2 billion would pay the salaries for more than
36,000 public school teachers.\21\ And, this amount in lost
state revenues would likely increase substantially over the
years. As the CBO explained, corporations ``would rearrange
their business activities to take advantage of beneficial tax
treatments that would result from the interaction of the new
Federal law and certain state taxing regimes. Those changes in
business activities would likely result in additional revenue
losses to the states.''\22\ Separately, Oregon has predicted
that H.R. 1439 would lead to between $90 and $116 million in
lost revenue per year, which is about 19% of the state's
corporate income tax revenue.\23\
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\19\Congressional Budget Office Cost Estimate, H.R. 1439: Business
Activity Tax Simplification Act of 2011, 2 (Sept. 13, 2011) (emphasis
added).
\20\The Unfunded Mandates Reform Act is intended to curb the
practice of imposing Federal mandates on state and local governments
without adequate funding. Unfunded Mandates Reform Act of 1995, Pub. L.
No. 104-4, 109 Stat. 48 (1995).
\21\$2 billion is more than sufficient to finance the annual
salaries of 36,230 teachers paid at the national average salary of
$55,202, as calculated by the National Education Association.
National Education Association, Rankings of the States 2010 and
Estimates of School Statis-
tics 2011, at 17, 19, available at http://www.nea.org/assets/docs/HE/
NEA_Rankings_and_
Estimates010711.pdf.
\22\Congressional Budget Office Cost Estimate, at 3.
\23\Letter from Oregon Governor John A. Kitzhaber, MD to the Oregon
Congressional Delegation (Aug. 29, 2011) (on file with the House of
Representatives Committee on the Judiciary, Democratic Staff).
---------------------------------------------------------------------------
In 2006, the CBO estimated that legislation similar to H.R.
1439 would have led to ``virtually all states [losing]
revenues, [and] about 70 percent of the estimated losses would
come from ten states: California, Florida, Illinois, Michigan,
New Jersey, New York, Pennsylvania, Tennessee, Texas, and
Washington.''\24\ One would expect a similar present impact.
---------------------------------------------------------------------------
\24\H.R. Rep. No. 109-575, at 11 (2006).
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II. H.R. 1439 WILL EFFECTIVELY ELIMINATE THE TAX BURDEN FOR
OUT-OF-STATE COMPANIES
H.R. 1439 is ``another example of large, multi-state
corporations trying to shirk their tax responsibilities.''\25\
Simply, it will substantially diminish the ability of states to
tax business activity within their borders, thus favoring
multi-state corporations at the expense of local businesses and
taxpayers. The bill does so in several respects.
---------------------------------------------------------------------------
\25\The Business Activity Tax Simplification Act of 2011: Hearing
on H.R. 1439 Before the Subcomm. on Courts, Commercial and Admin. Law
of the H. Comm. on the Judiciary, 112th Cong. 247 (2011) (May 4, 2011
Letter from Robert S. McIntyre, Director of the Citizens for Tax
Justice).
---------------------------------------------------------------------------
A. LThe Bill's Expanding Public Law 86-272 Will Favor Out-of-State
Businesses
H.R. 1439 expands the prohibition in Public Law 86-272 to
apply to services and sales of intangible property of all
interstate businesses, rather than just the current sales of
tangible property.\26\ Public Law 86-272 already ``allows
corporations to have an unlimited number of salespeople in a
state at all times yet remain exempt from income tax if the
salespeople work out of home offices or visit from out of
state.''\27\ By expanding the reach of Public Law 86-272, H.R.
1439 would exempt from income tax business sectors which focus
on selling intangible goods and services. As a result, tax
revenues for states would be further reduced.
---------------------------------------------------------------------------
\26\H.R. 1439, Sec. 2.
\27\The Business Activity Tax Simplification Act of 2011: Hearing
on H.R. 1439 Before the Subcomm. on Courts, Commercial and Admin. Law
of the H. Comm. on the Judiciary, 112th Cong. 234 (2011) (Prepared
Statement of Michael Mazerov).
---------------------------------------------------------------------------
B. LThe Bill's Physical Presence Test Will Encourage Tax Evasion
H.R. 1439 requires a business entity to have a 15-day
physical presence within a state before that state can impose,
assess, or collect a net income tax or business activity tax on
such entity.\28\ The bill's physical presence standard,
however, includes several safe harbors for businesses, thereby
making the tax system more arbitrary, inconsistent, and
complex. The standard favors businesses with limited physical
presence but that may actually have major economic activity
within the state, while shifting the state corporate income tax
burden to local, small businesses and manufacturers, and
natural resource and service industries, that is, businesses
that pay local property and payroll taxes.
---------------------------------------------------------------------------
\28\H.R. 1439, Sec. 3.
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Nebraska Governor Dave Heineman and Delaware Governor Jack
Markell have stated that H.R. 1439 would create ``opportunities
for companies to structure corporate affiliates and
transactions to avoid paying state taxes.''\29\ The bill would
shield business income from taxation regardless of how much
income businesses derive from the state seeking to impose a tax
on them. For example, H.R. 1439's 15-day physical presence
test\30\ effectively creates a 14-day safe harbor. According to
noted state and local taxation expert Michael Mazerov,
---------------------------------------------------------------------------
\29\Letter from Nebraska Governor Dave Heineman, Chair of the
National Governors Association, and Delaware Governor Jack Markell,
Vice Chair of the National Governors Association, to Representative
Lamar Smith, Chairman of the House Committee on the Judiciary, and
Representative John Conyers, Jr., Ranking Member of the House Committee
on the Judiciary (Aug. 4, 2011) (on file with the House of
Representatives Committee on the Judiciary, Democratic Staff).
\30\H.R. 1439, Sec. 3(b)(2)(A).
In short, BATSA's 14-day safe harbor would allow many
sophisticated multi-state corporations to avoid having
a business activity tax liability in many or all states
in which they have customers. Firms could maintain
substantial numbers of employees and substantial
amounts of equipment in a state on a continuously
rotating basis without creating BAT nexus.\31\
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\31\The Business Activity Tax Simplification Act of 2011: Hearing
on H.R. 1439 Before the Subcomm. on Courts, Commercial and Admin. Law
of the H. Comm. on the Judiciary, 112th Cong. 238 (2011) (Prepared
Statement of Michael Mazerov).
Meanwhile, in-state based companies would easily exceed the 14-
day safe harbor and be subject to business activity taxes.
Thus, the legislation's physical presence standard would favor
businesses with limited physical presence but often with major
economic activity within the state, while shifting the state
corporate income tax burden to local businesses.
By encouraging tax evasion through the creation of tax
shelter opportunities for nonresident businesses--which would
be primarily businesses with ample resources--the bill makes
the tax system more arbitrary, inconsistent, and complex.\32\
As the nonpartisan Congressional Research Service explained,
``[T]he 15-day rule and the safe harbor for limited or
transient activity . . . would increase opportunities for tax
planning and thus tax avoidance and possibly evasion.''\33\ As
a result, a business could avoid paying taxes in a state that
apportions income based solely on sales (single sales factor
apportionment formula) by locating its physical assets in that
state, while directing its sales in that state through an out-
of-state company.\34\ For these reasons, at the markup,
Representative Judy Chu offered an amendment to strike the
provision providing for these carve-outs, but the amendment was
defeated by voice vote.\35\
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\32\The Business Activity Tax Simplification Act of 2008: Hearing
on H.R. 5267 Before the Subcomm. on Commercial and Admin. Law of the H.
Comm. on the Judiciary, 110th Cong. 52 (2008) (Written Testimony of
David Quam).
\33\Congressional Research Service Report for Congress, State
Corporate Income Taxes: A Description and Analysis, RL32297 (June 23,
2008).
\34\The Business Activity Tax Simplification Act of 2011: Hearing
on H.R. 1439 Before the Subcomm. on Courts, Commercial and Admin. Law
of the H. Comm. on the Judiciary, 112th Cong. 45 (2011) (Written
Testimony of R. Bruce Johnson).
\35\The Business Activity Tax Simplification Act of 2011: Markup of
H.R. 1439 Before the H. Comm. on the Judiciary, 112th Cong. (July 7,
2011) (Amendment #3 of Representative Judy Chu).
---------------------------------------------------------------------------
H.R. 1439 will allow out-of-state businesses to reap the
benefits of state-provided services without having to pay for
them. Supporters of this legislation argue that out-of-state
businesses should not have to pay business activity taxes
because they assert they do not benefit from state provided
services.\36\ ``Although this point of view may have some
political cache, it is factually unsupportable.''\37\ Such
businesses often benefit substantially from state public
services such as fire and police protection.\38\ Out-of-state
companies compete with in-state mom-and-pop stores for
customers and, like every other company doing business within
the state, benefit from the transportation services the state
provides.\39\ Also, when an out-of-state bank makes mortgage
loans in a state, the value of the houses that serve as
collateral depends on the quality of local schools and the
safety of the community. Furthermore, that same out-of-state
bank would use the local court system if legal action is
necessary for non-payment of mortgage loans. Each of these
services is provided by the state notwithstanding a company's
lack of physical presence in that state.
---------------------------------------------------------------------------
\36\The Business Activity Tax Simplification Act of 2011: Hearing
on H.R. 1439 Before the Subcomm. on Courts, Commercial and Admin. Law
of the H. Comm. on the Judiciary, 112th Cong. 34 (2011) (Written
Testimony of Corey Schroeder); see also John A. Swain, State Income Tax
Jurisdiction: A Jurisprudential and Policy Perspective, 45 Wm. & Mary
L. Rev. 319, 378 (Oct. 2003).
\37\Swain, supra note 36, at 379.
\38\Charles McClure and Walter Hellerstein, ``Congressional
Intervention in State Taxation: A Normative Analysis of Three
Proposals,'' State Tax Notes, 721-735, 734-735, March 1, 2004.
\39\The Business Activity Tax Simplification Act of 2008: Hearing
on H.R. 5267 Before the Subcomm. on Commercial and Admin. Law of the H.
Comm. on the Judiciary, 110th Cong. 50 (2008) (Testimony of David
Quam); see also The Business Activity Tax Simplification Act of 2003:
Hearing on H.R. 3220 Before the Subcomm. on Commercial and Admin. Law
of the H. Comm. on the Judiciary, 108th Cong. 125 (2004) (Prepared
Statement of the Multistate Tax Commission).
---------------------------------------------------------------------------
C. LThe Bill Severely Restricts the Ability of States To Apportion Tax
Liability
H.R. 1439 would severely restrict the ability of states to
apportion the income of a business that does not meet the
physical presence standard as defined by the legislation.\40\
Currently, some states include in their tax calculations the
income of all entities of a business enterprise if one of those
entities has a physical presence within the state.\41\
Combining the income ensures that a parent company does not
avoid paying state business activity taxes by merely creating
holding companies or affiliates to avoid establishing a
physical presence. H.R. 1439, however, would favor businesses
that have not established physical presence, as defined by the
bill, by excluding from net income tax calculations holding
companies and other entities.\42\ Thus, large multistate
businesses will have less tax liability.
---------------------------------------------------------------------------
\40\H.R. 1439, Sec. 4.
\41\For a thorough discussion on apportionment, see State Taxation:
The Role of Congress in Developing Apportionment Standards: Hearing
Before the Subcomm. on Commercial and Admin. Law of the H. Comm. on the
Judiciary, 111th Cong. (2010), and particularly the written testimony
of Daniel B. De Jong, at 37-39, for a dissection of the Joyce and
Finnigan approaches, which this provision in the legislation addresses.
\42\The Business Activity Tax Simplification Act of 2011: Hearing
on H.R. 1439 Before the Subcomm. on Courts, Commercial and Admin. Law
of the H. Comm. on the Judiciary, 112th Cong. 64 (2011) (Testimony of
R. Bruce Johnson).
---------------------------------------------------------------------------
III. H.R. 1439 WILL FORCE STATES TO CUT ESSENTIAL SERVICES AND
INCREASE TAXES ON LOCAL TAXPAYERS
As a policy matter, we note that state and local
governments work closely with the Federal Government to provide
essential government services such as educating our children,
maintaining needed transportation infrastructure, and
protecting us from domestic and foreign terrorism. State and
local governments pay for these services through tax revenues.
States, however, would be severely hampered in their ability to
provide these essential services if Congress restricts their
ability to collect much needed revenues as proposed by H.R.
1439, which, in turn, would adversely impact revenues local
governments receive from their state counterparts.
H.R. 1439 will eviscerate state revenues by excluding from
possible state taxation billions of dollars in current business
income. Thus, to balance their budgets, states will be forced
to cut services and shift most of the tax burden onto local
taxpayers through increased property, income, and sales taxes.
H.R. 1439 will restrain the states' ability to cope with
economic downturns in several respects. First, the legislation
will deny states the flexibility to raise revenue.\43\ Second,
H.R. 1439's inflexible effective date (January 1, 2012) fails
to take into consideration that it is midway through most
states' fiscal years, and may not give states sufficient time
to adjust their budgetary commitments to take into
consideration the expected revenue losses.\44\ At the markup,
Representative Judy Chu offered an amendment to change the
effective date to January 1, 2022, which would provide
sufficient time for state governments to plan accordingly.\45\
This amendment, however, was defeated.\46\ Third, H.R. 1439
will hinder the states' ability to balance their budgets. Most
states are required, either statutorily or constitutionally, to
balance their state budgets.\47\ Budgets are based on
anticipated revenue and spending for the fiscal cycle. When
revenue declines or spending increases during the fiscal cycle,
states begin to run a deficit. States must then account for the
deficit by cutting spending or raising taxes.
---------------------------------------------------------------------------
\43\State Taxation: The Impact of Congressional Legislation on
State and Local Government Revenues: Hearing Before the Subcomm. on
Commercial and Admin. Law of the H. Comm. on the Judiciary, 111th Cong.
27-28 (2010) (Testimony of Vermont Governor Jim Douglas).
\44\H.R. 1439, Sec. 5(b).
\45\The Business Activity Tax Simplification Act of 2011: Markup of
H.R. 1439 Before the H. Comm. on the Judiciary, 112th Cong. (July 7,
2011) (Amendment #2 of Representative Judy Chu).
\46\The amendment failed by a roll call vote of 7-24. Id.
\47\National Association of State Budget Officers, Budget Processes
in the States 40 (Summer 2008).
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During the current economic climate, the state tax revenue
base has declined as a result of higher unemployment, lower
real estate property taxes, and less sales tax revenue. The
need for state and local government services, however, has not
correspondingly declined. In fact, demand for many of these
essential services, such as unemployment payments and other
social programs, has increased during the current economic
downturn.\48\
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\48\Donald J. Boyd, Nelson A. Rockefeller Institute of Government,
Recession, Recovery, and State-Local Finances, Presentation before the
Forecasters Club of New York 2, Jan. 28, 2010.
---------------------------------------------------------------------------
The Center on Budget and Policy Priorities estimates that
the states will face combined budget shortfalls of $103 billion
for fiscal year 2012.\49\ To balance their budgets, state and
local governments already have had to respond through measures
which heavily impact working families. For example, 44 states
have cut more than 400,000 public sector jobs since August
2008; California, Michigan, and Delaware have slashed benefits
to families living below the poverty line; and Texas cut about
$1 billion in education funding over the past 2 years from its
already well below-average education budget and another $1
billion from its higher education budget.\50\ Additionally,
some states have reduced their aid to local governments for
fiscal 2012.\51\ The lost aid may lead to fewer police officers
on the street, which could result in more crime, or less
funding for hiring teachers, which could further depress our
educational system. ``By depriving states of business activity
tax revenues they currently are collecting, the legislation
could further impair their ability to provide services that are
a critical foundation of a healthy national economy--such as
high-quality K-12 and university education and transportation
infrastructure.''\52\ Labor organizations fear that the
``annual loss [in revenue] would worsen state and local budget
problems and force cuts to education, health care, job creation
and other vital services.''\53\ Enactment of H.R. 1439 would
force states to cut essential services.
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\49\Center on Budget and Policy Priorities, New Fiscal Year Brings
Further Budget Cut to Most States, Slowing Economic Recovery, June 28,
2011.
\50\Instead of Signs of Recovery, a Sucker Punch for State Budgets,
Wash. Post, May 29, 2011, at G7.
\51\National Governors Association and National Association of
State Budget Officers, The Fiscal Survey of States, Spring 2011, at 8,
available at http://www.nasbo.org/LinkClick.aspx?file
ticket=yNV8Jv3X7Is%3d&tabid=38.
\52\The Business Activity Tax Simplification Act of 2011: Hearing
on H.R. 1439 Before the Subcomm. on Courts, Commercial and Admin. Law
of the H. Comm. on the Judiciary, 112th Cong. 226 (2011) (Prepared
Statement of Michael Mazerov).
\53\Id. at 285-286.
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Instead of spending less on essential services, states
could choose to increase taxes to cover the revenue losses
expected after enactment of H.R. 1439. According to Utah State
Tax Commissioner R. Bruce Johnson, the expected revenue loss by
H.R. 1439 ``is not revenue that is going to go away, . . . That
tax is going to be shifted to our local businesses and our
local taxpayers. It is going to have a devastating impact on
small business.''\54\ In sum, H.R. 1439 will burden local
taxpayers while excusing out-of-state businesses from paying
their fair share of taxes.
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\54\The Business Activity Tax Simplification Act of 2011: Hearing
on H.R. 1439 Before the Subcomm. on Courts, Commercial and Admin. Law
of the H. Comm. on the Judiciary, 112th Cong. 37 (2011) (Statement of
R. Bruce Johnson).
---------------------------------------------------------------------------
IV. H.R. 1439 WILL INCREASE LITIGATION COSTS FOR SMALL BUSINESSES AND
STATE GOVERNMENTS
H.R. 1439 will not minimize litigation, as its supporters
contend.\55\ Instead of providing a clear physical presence
standard that will decrease litigation, H.R. 1439 ``contains
numerous undefined terms that will generate considerable
litigation''.\56\
---------------------------------------------------------------------------
\55\Id. at 3 (Statement of Representative Bob Goodlatte).
\56\Id. at 212.
---------------------------------------------------------------------------
Two simple examples highlight the many uncertainties that
H.R. 1439 creates. First, H.R. 1439 describes ``physical
presence'' as ``[u]sing the services of an agent (excluding an
employee) to establish or maintain the market in the State, if
such agent does not perform business services in the State for
any other person during such taxable year.''\57\ The
legislation leaves to the courts to interpret the vague terms
``establish or maintain,'' ``perform business,'' and
``services.'' Second, H.R. 1439 allows a business to ``conduct
limited or transient business activity'' within a state without
establishing a physical presence.\58\ According to an analysis
of the Business Activity Tax Simplification Act by the
Federation of Tax Administrators, a court will likely have to
interpret the terms ``limited'' and ``transient'' because they
are undefined in the legislation:
---------------------------------------------------------------------------
\57\H.R. 1439, Sec. 3(b)(1)(B).
\58\H.R. 1439, Sec. 3(b)(2)(B).
[A] company's activity could be permanent but limited
in scope, or unlimited in scope but not permanent, and
still be protected from taxation. . . . For example, a
corporation whose charter or application to conduct
business in the state indicates that it will engage
only in banking activities and nothing else (so that
its activities are ``limited,'' as ``restricted in . .
. scope'') could be protected from taxation even if in
the state permanently, as could a corporation whose
charter or application indicates that it will engage in
every activity in the state that a corporation may
legally perform, but will do so only for 10 years (so
that its activities are ``transient,'' as ``not
permanent'').\59\
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\59\Matt Tomalis, Some Fatal Flaws of S. 1726, H.R. 5267 and All
BAT Nexus Bills, State Tax Notes, Mar. 3, 2008, at 691-703, 695.
Given these and other substantial new limitations on their
ability to raise revenue, states undoubtedly will litigate to
establish the narrowest interpretations of the terms within
H.R. 1439.\60\ This increased litigation will lead to more
legal costs for states and multi-state businesses, contrary to
proponents of the bill.
---------------------------------------------------------------------------
\60\For example, according to Oregon Governor Kitzhaber,
``enactment of H.R. 1439 would result in substantial litigation and
uncertainty as the new boundaries it would create are refined in the
courts.'' Letter from Oregon Governor John A. Kitzhaber, MD to the
Oregon Congressional Delegation (Aug. 29, 2011) (on file with the House
of Representatives Committee on the Judiciary, Democratic Staff).
---------------------------------------------------------------------------
CONCLUSION
H.R. 1439 is irresponsible legislation that will have a
devastating impact on state revenues, force state governments
to eliminate essential governmental programs and services,
burden local taxpayers, and favor large multi-state businesses
over local businesses. For all of these reasons, we
respectfully dissent.
John Conyers, Jr.
Jerrold Nadler.
Melvin L. Watt.
Steve Cohen.
Judy Chu.