Would Thomas Jefferson approve of Congress imposing its will on state efforts to collect income tax from out-of-state companies? That was the question posed by Rep. Steve Cohen (D-TN) to two sponsors of the Business Activity Tax Simplification Act of 2011 (BATSA) (H.R. 1439) who both happen to be from Jefferson’s home state of Virginia. Rep. Robert C. Scott (D-VA) and Rep. Bob Goodlatte (R-VA) both replied that Jefferson would approve of this bill. This new version of BATSA was introduced on April 8, 2011, and is the latest attempt to enact federal nexus legislation. A hearing on the bill was held on April 13 before the Subcommittee on Commercial and Administrative Law of the House Judiciary Committee with the two sponsors from Virginia testifying along with state and industry representatives. The Subcommittee members signaled whether they were supportive or opposed to BATSA in opening statements, with a clear split among those in favor and those who felt it would hurt states’ abilities to address budget deficits.
BATSA is generally promoted as a much-needed update and expansion to Public Law 86-272. Public Law 86-272, enacted in 1959, serves to prohibit a state from imposing a net income tax if a company's only in-state activities are solicitation of orders for sales of tangible personal property which are sent outside the state for approval or rejection and are filled from outside the state. BATSA extends Public Law 86-272 in several ways, including to solicitation of sales of other than tangible personal property (e.g., sales of intangible property and services).
BATSA is substantially the same as previous versions of this proposed legislation with one notable change: Section 4 of H.R. 1439 codifies the Joyce approach to apportioning income in a combined report, where only sales by those individual group members that are individually subject to taxation are included in the numerator of the apportionment formula.1 The alternative Finnigan approach (which is preempted by BATSA if enacted) requires all members of a unitary group to include sales in the numerator of the apportionment formula, regardless of whether the individual members have nexus.2
The two sponsors of BATSA emphasized the importance of clarity for businesses selling goods and services in multiple states and the need for a “bright line rule” regarding a state’s ability to assess income tax on out-of-state companies. Rep. Goodlatte was especially focused on small businesses that cannot afford “teams of lawyers” to comply with the multitude of nexus standards among the states.
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