House Judiciary Committee Holds Hearing on State Taxation and the Role of Congress in Developing Apportionment Standards

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On May 6, the House Judiciary Subcommittee on Commercial and Administrative Law (CAL), chaired by Representative Steven Cohen (D-TN), held a hearing on state income taxation to explore what role, if any, Congress should play in developing apportionment uniformity. Three witnesses were invited to testify: John A. Swain, Professor of Law, University of Arizona Rogers College of Law; James R. Eads, Jr., Executive Director, Federation of Tax Administrators (FTA); and Daniel B. De Jong, Tax Counsel, Tax Executives Institute, Inc. (TEI). A consensus was reached among the three witnesses that uniformity in apportionment methods was desirable, but they differed in their opinions on what role the Federal Government should play in developing uniform apportionment standards.

Professor Swain testified that uniformity in taxation of multistate businesses is an important goal. He stated that, given the current disparity among states’ apportionment laws, Congress now has a “predicate for action” on this issue. Without uniform rules, there is a risk of both over-taxation and under-taxation of companies that conduct business in multiple states. Professor Swain noted that it is unlikely states will cooperate and adopt uniform apportionment rules voluntarily. As a result, he concluded that a prima facie case exists for federal intervention because the states’ failure to coordinate their apportionment rules has resulted in (1) the risk of multiple taxation of interstate commerce and (2) greater tax compliance burdens on interstate business than would be present under uniform rules.

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