House Small Business Committee To Scrutinize Business Activity Taxes

By: Jay Heflin, CongressNow Staff
CongressNow
Monday, February 11, 2008 5:11 PM

The House Small Business Committee will host a hearing Thursday on the impact of business activity taxes on small companies. BATs — which are levied by local governments on entities with a business presence within their borders but no physical address — are, according to its critics, inconsistently applied between states and can cause financial hardship on smaller companies who are unsure about how to comply with them. Velázquez will begin examining whether these taxes are being mishandled and are creating confusion among business owners.

“We’re getting a sense of what the situation is,” said a spokesman for Rep. Nydia Velázquez (D-N. Y.), who chairs the committee. She said her panel will look at “the challenges for small businesses” as well as small business owners’ perceptions in respect to BATs.

The Internet has added to the problems associated with BATs, as business owners find it easier to engage in interstate commerce. The Velázquez spokesman said that one software developer incurred a $200 to $300 licensing fee for selling a $40 copy of its product to a customer in an neighboring state.

While the committee will examine the efficacy of the tax, it will likely determine whether federal oversight of BATs is needed after Thursday’s hearing.

“That would be a question for the committee members after a hearing like this,” the spokesman said. “I’m not sure that we’re quite there on this yet.”

The prospect of federal oversight will likely send chills through state legislatures. Some states have already fallen into recession due to a record number of foreclosures, which in turn curtailed the amount of revenue raised. In many places, revenues from BATs keep coffers from falling deeper into the red. In 2006, the Congressional Budget Office found that local governments could lose close to $3 billion over five years if the tax were to be repealed. That revenue stream could be disrupted if federal authorities intervene by streamlining the tax to make compliance easier for taxpayers.

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