[Congressional Record (Bound Edition), Volume 155 (2009), Part 3]
[Extensions of Remarks]
[Pages 4328-4329]
[From the U.S. Government Publishing Office, www.gpo.gov]




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

                                 ______
                                 

                           HON. RICK BOUCHER

                              of virginia

                    in the house of representatives

                       Friday, February 13, 2009

  Mr. BOUCHER. Mr. Speaker, I rise to introduce the Business Activity 
Tax Simplification Act of 2009, a measure with far-reaching 
consequences for businesses throughout our nation.
  Traditionally, states and localities have levied corporate income, 
franchise and other taxes only on those businesses that have a physical 
presence in the taxing jurisdiction. The growth of the Internet and 
interstate business transactions has made it possible for businesses to 
conduct transactions without the constraints of geopolitical 
boundaries. As a result, recently some states have attempted to expand 
their tax base by assessing business activity taxes against out-of-
state companies that have customers but no property or employees in the 
taxing state. Both large and small companies are facing an increasingly 
unpredictable tax environment for businesses, which hinders business 
expansion and threatens the continued development of e-commerce.
  The legislation we are introducing today, which I am pleased to 
champion with my colleague and good friend Mr. Goodlatte--as well as 
Mr. Artur Davis, Ms. Bachmann, Ms. Herseth-Sandlin, Mr. Jones, Mr. 
Bobby Scott, Mr. Jordan, Mr. Weiner, Mr. Pence and Mr. Joe Wilson--will 
bring certainty to today's increasingly chaotic tax environment for 
businesses by clarifying that the states cannot attempt to tax the 
income of a company that has no physical presence within the taxing 
state's borders.
  Our legislation sets forth clear, specific standards to govern when 
businesses should be obliged to pay business activity taxes to a state. 
Generally, a business must use employees or services in a state for 
more than 15 days in a calendar year before it is liable to pay 
business activity taxes to that jurisdiction.
  The Business Activity Tax Simplification Act also modernizes 
legislation which Congress enacted 50 years ago that set clear, uniform 
standards for when states could tax out-of-state businesses for the 
solicitation of orders for sales. Like the economy of its time, the 
scope of Public Law 86-272 was limited to income taxes on tangible 
personal property. Our nation's economy has changed dramatically over 
the past half-century, and this outdated statute needs to be modernized 
to apply

[[Page 4329]]

equally to the sale of intangible property and services, and to other 
business activity taxes.
  I want to emphasize that the Business Activity Tax Simplification Act 
does not diminish the ability of states and localities to collect tax 
revenue. Rather, it rationalizes and makes more predictable the process 
of doing so.
  The lack of clarity in current law has led to sometimes absurd 
results. A collection agent with the New Jersey Department of Taxation 
stopped a refrigerated truck on the New Jersey turnpike, loaded with 
product belonging to Smithfield Foods, a company headquartered in my 
state of Virginia. The agent held the truck and its driver for several 
hours and demanded that, to release the truck, Smithfield had to wire 
$150,000 immediately to the New Jersey Department of Taxation. The 
agent claimed that he had the right to hold the truck and its contents 
because Smithfield had failed properly to file New Jersey tax returns.
  Smithfield informed the New Jersey agent that his claim was 
unfounded. It explained that Public Law 86-272 protected it from New 
Jersey income taxation because it only engaged in solicitation in New 
Jersey and had no physical operations in the state. The agent refused 
to accept this explanation; however, he finally agreed to release the 
truck and its driver in return for $8,000.
  Smithfield appealed this aggressive and incorrect application of 
Public Law 86-272 to the New Jersey State tax commissioner. Ultimately, 
New Jersey accepted Smithfield's contention that it has no physical 
presence in the state and is not subject to New Jersey income tax. It 
issued Smithfield a refund and an apology for its roadside justice 
system, but not before Smithfield had invested much time and expense in 
resolving a situation which should not have arisen under current law. 
Our measure will help avoid such scenarios in the future by clarifying 
the physical presence standard embodied in Public Law 86-272.
  New Jersey has used similar tactics against out-of-state companies 
selling intangible goods to its residents, a situation not covered by 
86-272. It has argued that a mom-and-pop South Carolina software 
company with no physical presence in any states other than South 
Carolina and Georgia, owes a minimum of $600 per year in corporate 
income taxes and fees based only on the sale of licensed software to a 
New Jersey entity, and that the company would owe such tax every year 
that its software was in use in the state, even for those years in 
which the company had no income from any customer in New Jersey.
  The Louisiana Department of Revenue has threatened to assess business 
activity taxes on several out-of-state companies based merely on the 
fact that they broadcast programming into the state, arguing that the 
companies are exploiting the Louisiana market because the programming 
is seen or heard by individuals in Louisiana.
  Several states attempt to assess business activity taxes on out-of-
state credit card companies based on the fact that their customers 
reside in the taxing jurisdiction and on arguments that the credit card 
company has engaged in the ``substantial privilege of carrying on 
business'' in the state.
  The Business Activity Tax Simplification Act offers Members the 
opportunity to put an end to nonsensical situations like these. In 
doing so, we will provide certainty to both U.S. businesses and to 
states, thereby fostering economic growth and development. I thank Mr. 
Goodlatte and the original cosponsors of the Business Activity Tax 
Simplification Act for their support, and I urge each of my colleagues 
to assist us in enacting this much needed bipartisan legislation.