2019-2 - Opposing Business Activity Tax Nexus Legislation |
Resolution 2019-2
Opposing Business Activity Tax Nexus Legislation
Background Business activity taxes are levied by states for the privilege of doing business in the state and are generally measured by the portion of gross or net income derived from the state. These include state corporate income taxes, gross receipts taxes, business license taxes, franchise taxes, business and occupation taxes, and insurance premiums taxes. The U.S. Supreme Court has found that the U.S. Constitution allows a state to tax a portion of business income if there is a substantial nexus between the business and the taxing state. The Supreme Court has also acknowledged in South Dakota v. Wayfair, 585 U.S. ___ (2018) that a physical presence is not required for businesses to have substantial nexus in a state and be subject to state and local tax responsibilities. In recent years, bills have been introduced in both the House and Senate named the Business Activity Tax Simplification Act (BATSA). On September 14, 2015, the Congressional Budget Office considered a version of BATSA in HR 2584 (114th Congress) and estimated “that the costs -- in the form of forgone revenues -- to state and local governments would be more than $2 billion in the first full year after enactment and at least that amount in subsequent years.” The bill would eliminate state jurisdiction to tax business income derived from the state unless the business had a substantial amount of physical presence in the state and would provide that certain types of physical presence could not be considered for purposes of determining the jurisdiction to impose business activity taxes. The bill also would expand the limitations of P.L. 86-272 to all forms of business activity taxes (instead of just net income taxes) and to the solicitation of sales of all types of property and services instead of just tangible personal property. BATSA would cause the following disruptions in state and local tax systems:
Resolution The Federation of Tax Administrators strongly opposes any legislation that would restrict a state’s constitutional authority to impose tax on the portion of a businesses’ income derived from that state. The FTA opposes any legislation that would require physical presence for the imposition of state business activity taxes. |