Tuesday, September 27, 2005
H.R. 1956 would create a bright-line physical presence nexus requirement in order for states to collect net income taxes or other business activity taxes (“BATs”) on multistate enterprises. This legislation would amend a Public Law enacted in 1959 which prohibits states from imposing taxes on the net income of interstate sellers of tangible personal property if the only business activity within the state consists of the solicitation of certain sales orders.
The hearing takes place at 1:00 pmin Room 2141 of the Rayburn Building. For a detailed examination of H.R. 1956, see The Tax Foundation's Paying for "Civilized Society" in the Global Marketplace: H.R. 1956's Physical Presence Rule Accurately Matches Taxes Paid and Benefits Received. Here is the Conclusion:
U.S. corporations should only pay business activity taxes in those states in which they are physically present. The physical presence rule is fair to businesses since it requires tax in exchange for government-provided benefits in every state where companies employ labor and capital. Physical presence is also more consistent with the language in U.S. tax treaties and thus creates more equity between U.S.-based and foreign-based corporations doing business in the U.S. The physical presence standard also has other benefits, including the promotion of a robust interstate market, maintenance of state tax competition and the reduction in the number of states in which corporations have to pay tax. For these reasons, Congress should consider moving ahead with the adoption of a physical presence standard for state business activity taxes.