[Congressional Record Volume 155, Number 30 (Friday, February 13, 2009)]
[Extensions of Remarks]
[Page E282]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  THE INTRODUCTION OF THE ``BUSINESS ACTIVITY TAX SIMPLIFICATION ACT''

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                           HON. BOB GOODLATTE

                              of virginia

                    in the house of representatives

                       Friday, February 13, 2009

  Mr. GOODLATTE. Madam Speaker, I rise today in strong support of the 
Business Activity Tax Simplification Act. I joined my good friend Rick 
Boucher of Virginia to introduce this legislation in order to provide a 
``bright line'' test to clarify state and local authority to collect 
business activity taxes from out-of-state entities.
  Many states and some local governments levy corporate income, 
franchise and other taxes on out-of-state companies that conduct 
business activities within their jurisdictions. While providing revenue 
for states, these taxes also serve to pay for the privilege of doing 
business in a state.
  However, with the growth of the Internet, companies are increasingly 
able to conduct transactions without the constraint of geopolitical 
boundaries. The growth of the high tech industry and interstate 
business-to-business and business-to-consumer transactions raises 
questions over where multi-state companies should be required to pay 
corporate income and other business activity taxes.
  Over the past several years, a growing number of jurisdictions have 
sought to collect business activity taxes from businesses located in 
other states, even though those businesses receive no appreciable 
benefits from the taxing jurisdiction and even though the Supreme Court 
has ruled that the Constitution prohibits a state from imposing taxes 
on businesses that lack substantial connections to the state. This has 
led to unfairness and uncertainty, generated contentious, widespread 
litigation, and hindered business expansion, as businesses shy away 
from expanding their presence in other states for fear of exposure to 
unfair tax burdens.
  In order for businesses to continue to become more efficient and 
expand the scope of their goods and services, it is imperative that 
clear and easily navigable rules be set forth regarding when an out-of-
state business is obliged to pay business activity taxes to a state. 
Otherwise, the confusion surrounding these taxes will have a chilling 
effect on e-commerce, interstate commerce generally, and the entire 
economy as tax burdens, compliance costs, litigation, and uncertainty 
escalate.
  Previous actions by the Supreme Court and Congress have laid the 
groundwork for a clear, concise and modern ``bright line'' rule in this 
area. In the landmark case of Quill Corp. v. North Dakota, the Supreme 
Court declared that a state cannot impose a tax on an out-of-state 
business unless that business has a ``substantial nexus'' with the 
taxing state. However, the Court did not define what constituted a 
``substantial nexus'' for purposes of imposing business activity taxes.
  In addition, fifty years ago, Congress passed legislation to prohibit 
jurisdictions from taxing the income of out-of-state corporations whose 
in-state presence was nominal. Public Law 86-272 set clear, uniform 
standards for when states could and could not impose such taxes on out-
of-state businesses when the businesses' activities involved the 
solicitation of orders for sales. However, like the economy of its 
time, the scope of Public Law 86-272 was limited to tangible personal 
property. Our nation's economy has changed dramatically over the past 
fifty years, and this outdated statute needs to be modernized.
  The Business Activity Tax Simplification Act of 2008 both modernizes 
and provides clarity to an outdated and ambiguous tax environment. 
First, the legislation updates the protections in P.L. 86-272. This 
legislation reflects the changing nature of our economy by expanding 
the scope of the protections in P.L. 86-272 from just tangible personal 
property to include intangible property and services.
  In addition, our legislation sets forth clear, specific standards to 
govern when businesses should be obliged to pay business activity taxes 
to a state. Specifically, the legislation establishes a ``physical 
presence'' test such that an out-of-state company must have a physical 
presence in a state before the state can impose corporate net income 
taxes and other types of business activity taxes.
  In our current, challenging economic times, it is especially 
important to eliminate artificial, government-imposed barriers to small 
businesses. Small businesses are crucial to our economy and account for 
a significant majority of new product ideas and innovation. Small 
businesses are also central to the American dream of self-improvement 
and individual achievement, which is why it is so vital that Congress 
enact legislation that reduces the tax burdens that hinder small 
businesses and ultimately overall economic growth and job creation.
  Unfortunately, small businesses are often the hardest hit when 
aggressive states and localities impose excessive tax burdens on out-
of-state companies. These businesses do not have the resources to hire 
the teams of lawyers that many large corporations devote to tax 
compliance, and they are more likely to halt expansion to avoid 
uncertain tax obligations and litigation expenses.
  The clarity that the Business Activity Tax Simplification Act will 
bring will ensure fairness, minimize litigation, and create the kind of 
legally certain and stable business climate that frees up funds for 
small businesses to make investments, expand interstate commerce, grow 
the economy and create new jobs.
  At the same time, this legislation will protect the ability of states 
to ensure that they are fairly compensated when they provide services 
to businesses that do have physical presences in the state.
  I urge my colleagues to support this important legislation.

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