[Congressional Record (Bound Edition), Volume 151 (2005), Part 6]
[Extensions of Remarks]
[Page 8384]
[From the U.S. Government Publishing Office, www.gpo.gov]




            BUSINESS ACTIVITY TAX SIMPLIFICATION ACT OF 2005

                                 ______
                                 

                           HON. BOB GOODLATTE

                              of virginia

                    in the house of representatives

                        Thursday, April 28, 2005

  Mr. GOODLATTE. Mr. Speaker, I am pleased to introduce today, along 
with my good friend Mr. Boucher, the Business Activity Tax 
Simplification Act of 2005. This important legislation provides a 
``bright line'' that clarifies 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 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, over forty 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 forty years, and this outdated statute needs 
to be modernized.
  That is why we are introducing this important legislation today. The 
Business Activity Tax Simplification Act both modernizes and provides 
clarity in an outdated and ambiguous tax environment. First, the 
legislation updates the protections in PL 86-272. Our legislation 
reflects the changing nature of our economy by expanding the scope of 
the protections in PL 86-272 from just tangible personal property to 
include intangible property and all types of 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 franchise taxes, 
business license taxes, and other business activity taxes.
  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 encourages businesses 
to make investments, expand interstate commerce, grow the economy and 
create new jobs. At the same time, this legislation will ensure that 
states and localities are fairly compensated when they provide services 
to businesses with a physical presence in the state.
  I urge each of my colleagues to support this very important 
bipartisan legislation.

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