JUDICIARY SUBCOMMITTEE PASSES GOODLATTE'S BUSINESS ACTIVITY TAX LEGISLATION
December 13, 2005
Washington, DC: The House Judiciary Subcommittee on Commercial and Administrative Law today passed the Business Activity Tax Simplification Act of 2005, H.R. 1956, which was introduced by Congressmen Bob Goodlatte. This legislation clarifies the confusion surrounding when a state can levy business activity taxes on out-of-state businesses.
Over the past several years, a growing number of states have sought to collect business activity taxes from businesses in other states. The problem is that different states use different standards for determining what constitutes sufficient contacts with a state to justify taxation. As a result, businesses have shied away from expanding their presence in other states for fear of exposure to further taxation.
"This legislation sets specific guidelines for when an out-of-state business may be charged a tax for doing business in a state," Goodlatte said. "Just because a website can be accessed by consumers in a certain state, doesn't mean that state should be able to collect taxes from the website owner. This legislation focuses on allowing the Internet and the commerce that it facilitates to expand, by eliminating excessive taxes that harm on-line growth."
"The nexus provisions are necessary, common-sense clarifications that will benefit states and businesses by eliminating gray areas and establishing 'bright lines' regarding what constitutes a physical presence," Goodlatte said. "This legislation is a priority of the high tech community because it will ensure that businesses are not subject to double taxation at the state level, which will ultimately facilitate the continued growth of e-commerce, job creation and the overall strength of the American economy."
There are countless examples of aggressive state actions and positions against out-of-state companies. For example, some states take the position that a business whose trucks pass through the state six or fewer times in a year - without picking up or delivering goods - has sufficient connections with the state to justify imposing business activity taxes on that company. Other states assert that having a website on a server in the state creates a sufficient connection to justify imposing these taxes. Additionally, some states believe that registering to do business in a state, or listing a phone number in a local phone book in that state is a sufficient connection to justify taxation.
The Business Activity Tax Simplification Act of 2005 will be referred to the full House Judiciary Committee for further consideration.