Coalition to Protection Interstate Commerce

New bill could make state tax policies consistent

Living close to a state line like we do, the boundary that exists between our state and Georgia is readily apparent in business terms. I first noticed it in the disparity between gasoline prices here and across the line in places like Beachton and Thomasville.

But what about cases where your business activities transcend boundaries of all kinds? The Internet, for example, lets you reach customers across the globe. A satellite link puts your message or product in millions of homes simultaneously. At some point, physical boundaries and limitations seem to matter less.

Or do they?

States grappling with meager budgets and overstretched finances are actively working to extend their taxing powers to companies with no physical property or employees within their boundaries. The rationale they rely on is the legal concept of "nexus" or the connection the business may have with a particular state.

Businesses who operate in multiple jurisdictions are asking Congress to help curtail burdensome state taxation arising from an overly broad application of the nexus standard.

A group called the Coalition to Protect Interstate Commerce is calling on businesses to support a measure in Congress called the Business Activity Tax Simplification Act of 2008. The bill would update Public Law 86-272, which Congress enacted 49 years ago to prohibit states from assessing income taxes on companies whose only contact with a state is soliciting orders there for the delivery of tangible personal property.

The BATS Act, as it's referred to, modernizes PL 86-272 so that it also covers intangible personal property and services. The law would apply to all direct taxes on a business, not just those based on net income. Congress could clear up numerous impediments to interstate commerce, some of which have caused horror stories for businesses, including eight states that seek to tax companies whose trucks pass through their states, even though the firms don't pick up or deliver any goods.

One proponent of the bill is Stephen Joost, chief financial officer and principal in Firehouse Restaurant Group Inc., the Jacksonville-based sandwich shop chain. Firehouse does not object to paying taxes it owes, but Joost told the House Committee on Small Business earlier this month that his company spends hundreds of thousands of dollars a year to have accountants and attorneys make sense of taxation rules that vary with each state.

Firehouse has expanded across the country through the granting of franchises and licensing of trademarks, names, methods of operation and other intellectual property. Joost is concerned about state tax rules interfering with interstate commerce. His business could be liable for additional taxes simply for having a manager from Jacksonville visit a franchisee or travel to another state to inspect a Firehouse restaurant.

"What is needed, and what I would recommend, is a single set of rules defining what constitutes nexus and how it will be applied in the 50 states," he told the committee.

If your company faces the same situation from interstate operations, this is a remedy you should support, and now's the time to speak up.

Contact Democrat Business Editor Dave Hodges at (850) 599-2321 or dhodges@tallahassee.com.

Dave Hodges, Business Editor