September 26, 2005
For immediate release
Media contact: Chris Atkins (202) 464-5106
WASHINGTON, D.C.—With state revenue departments imposing corporate income taxes, franchise taxes and business activity taxes on firms that have no physical presence in state, a new study from the Tax Foundation says Congress is on the right path with H.R. 1956 which establishes a clear definition of when states can levy those taxes.
The new publication is in the Tax Foundation’s Fiscal Fact series, and is titled, “Paying for ‘Civilized Society’ in the Global Marketplace.” It asserts that H.R. 1956’s general physical presence rule for state business activity taxes accurately matches taxes paid and benefits received. H.R. 1956 is being heard on September 27 in the Commerce and Administrative Law Subcommittee of the House Judiciary.
“A physical presence standard for business activity taxes is simple, fair, and will reduce the burden of tax compliance for U.S. companies that sell all over the United States and the world,” said Staff Attorney Chris Atkins, author of the study.
Atkins asserts that it’s important, from a tax policy perspective, that corporations pay business activity tax to those states where they are benefiting from the protections and benefits of government. Physical presence is a better test of who receives these benefits because corporations primarily use government services where they employ labor and capital.
The alternative to physical presence is economic presence, according to which corporations must pay tax anywhere they make a sale or derive income. This opens firms up to the nightmarish complexity of complying with dozens of state tax systems, impairing interstate commerce and economic growth.
“All the states benefit from our open national marketplace, and to open up companies with no physical presence to taxation on such grounds will not promote—and may hinder—our integrated market,” says Atkins.
The Tax Foundation has monitored tax policy at the federal, state and local levels since 1937. Best known for its annual calculation of Tax Freedom Day®, the Tax Foundation is a nonprofit, nonpartisan 501(c)(3) organization based in Washington, D.C.
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