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Proposed "Business Activity Tax Nexus" Legislation Would Seriously Undermine State Taxes on Corporate Profits and Harm the Economy

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Abstract:

A bill under consideration in both houses of Congress would take away from the states authority they currently have to tax a fair share of the profits of many corporations that are based out-of-state but do business within their borders. H.R. 1956, the “Business Activity Tax Simplification Act of 2005” (“BATSA”), was re-introduced in the 109th Congress on April 28, 2005 by Representatives Bob Goodlatte and Rick Boucher. BATSA was approved by the Judiciary Committee on June 28, 2006 and is likely to be brought to the House floor during the week of July 24. The Senate version of BATSA, S. 2721, was introduced by Senator Charles Schumer on May 4, 2006.

BATSA defines many activities commonly conducted by corporations within a state as being no longer sufficient to obligate the corporation to pay several different kinds of taxes to the state (or to its local governments). Moreover, these “safe harbors” from taxation are defined in a highly arbitrary and inconsistent manner. These new restrictions on state and local taxing authority would have far-reaching, adverse impacts on the revenue-generating capacity and fairness of state and local tax systems. The most significantly affected taxes would be the corporate income taxes levied by 45 states, the District of Columbia, and New York City.