Yesterday, the U.S. House Judiciary Subcommittee on Commercial and Administrative Law held a hearing on “State Taxation: The Role of Congress in Defining Nexus.” The head of the Tax Foundation organization testified, making the following key points:
- It is not new for states to seek revenues by shifting tax burdens away from the majority of voting residents, such as with changing nexus rules.
- A physical presence rule provides an easy and logical answer to where the transaction is located, identical to the answer given for brick-and-mortar businesses.
- Congressional action to adopt a physical presence standard may be the best vehicle for preventing burdens to interstate commerce, because it can be more comprehensive and accountable than judicial action and can also better address issues of transition, retroactivity, and de minimis exemptions.
Here’s a quote from testimony given that made me want to stand up and cheer!
The Tax Foundation has catalogued the growth in state tax exporting. Increasingly, states have imposed higher, non-neutral taxes on individuals, goods, and services more likely to be used by non-residents. Our research has reviewed such taxes on visiting athletes, businesses engaged in interstate commerce, and hotel rooms and rental cars. States have also enacted subsidies and tax credits only available to favored in-state activities, and have shifted corporate tax burdens by changing apportionment and nexus rules.
As these states have reached beyond their borders for a larger share of taxes that would otherwise go to other states, they have reduced neutrality in the tax system, burdened interstate transactions with uncertainty, increased compliance costs, and threatened multiple taxation of the same business income by different states.
You can read the full testimony by clicking here.
This is fantastic news! The Supreme Court has declined to intervene, saying it’s a matter for state governments to work out. We need to get our elected representatives to look at the problem and design a workable solution.
I hope Congress is listening. I’ll be following the proceedings with great interest. As we’ve reported elsewhere on the site, there are 21 states now that are looking at or have already adopted tax nexus standards that include out-state residents and businesses. We must find a way to share tax revenues fairly. Otherwise, business owners and entrepreneurs will become discouraged and disillusioned. After all – why take the risk if there’s no reward?