Boucher, Goodlatte Reintroduce Measure On State Business Activity Taxing Nexus

Daily Tax Report
February 8, 2008

Reps. Rick Boucher (D-Va.) and Bob Goodlatte (R-Va.) Feb. 7 reintroduced legislation to establish bright-line standards to delineate when states can levy business activity taxes on out-of-state businesses, a measure long sought by corporations but sharply criticized in the past by state groups and governments.

The legislation is particularly focused on setting national guidelines for when a business would be considered to have physical nexus with a state, with one general guideline being that a company must use employees or services in a state for 15 days or more in a calendar year before it is liable to pay business activity taxes to that jurisdiction.

Digital Commerce Key Focus

The measure pays special attention to whether digital commerce, Internet use, the movement of intangible goods and software, and like activities would create physical presence in a state. It takes the position that, in general, those activities should not create undue tax burdens.

"Just because a Web site can be accessed by consumers in a certain state, doesn't mean that state should be able to collect taxes from the Web site owner," Goodlatte said in a Feb. 7 press release. "This legislation focuses on allowing the Internet and the commerce that it facilitates to expand, by eliminating excess taxes that harm online growth."

State Opposition Likely

States have vigorously opposed the bill over time, arguing it would rob them of their taxing sovereignty, their ability to combat abuses, and their ability to raise needed revenues and provide services used by the business community.

Introduced on several occasions, the bill got as far as the House floor in 2006 (H.R. 1956; 143 DTR G-8, 7/26/06).

Boucher argued in a Feb. 7 release that its time has once again arrived, noting that a growing number of states are now seeking to collect business activity taxes from companies in other states that have minimal contact with the state seeking to impose the tax. The reintroduced measure "will rectify the unfairness," he said.

Stakeholders Voice Support

The American Bankers Association, the Coalition to Protect Interstate Commerce, and other stakeholders Feb. 7 said they supported the legislative action.

Floyd Stoner, ABA executive vice president for congressional relations and public policy, said the bill would "help minimize litigation costs and uncertainty for businesses by clarifying that entities must have a physical presence in the taxing jurisdiction in order to be subject to state and local taxes. This in turn will foster a more stable business environment that encourages investment and creates new jobs."

Tara Bradshaw, spokeswoman for the interstate commerce coalition, said her group believes the measure would "simplify the needlessly complex tax systems that entrepreneurs and businesses must face when deciding whether to expand their businesses across state lines."

Texts of the bill and Boucher's introductory remarks are in TaxCore.

By Alison Bennet