Tax Analysts Blog

Is It Time for BATSA?

Posted on Feb 26, 2014

With all the focus on the Marketplace Fairness Act, another state-tax-related federal bill seems to be flying under the radar. Late last week, the U.S. House Judiciary Subcommittee announced it would hold a hearing on the Business Activity Simplification Act of 2013 (BATSA, H.R. 2992) on February 26. While BATSA has been on the table in Congress since 2003, it has never received a full House vote. Perhaps this will be the year.

BATSA has three basic features. The legislation would:

    1. Establish a physical presence nexus requirement before a state could impose or collect net income tax or other business activity taxes on a multistate business. Physical presence would also not be established unless a business was in a state for longer than 14 days.
    2. Update P.L. 86-272, which prohibits states from imposing an income tax on businesses whose activities in the taxing state are limited to the solicitation of sales of tangible personal property (provided the order is approved and filled outside the taxing state). BATSA would extend that protection to sales of intangibles and services.
    3. Limit the apportionment of income of a unitary group of affiliated businesses to only that portion of the business activity conducted by physically present businesses.

    Businesses are generally in favor of BATSA because they want to know what activities will trigger nexus. They badly need that certainty. States, on the other hand, have expressed concern about BATSA. Multistate Tax Commission Executive Director Joe Huddleston and Federation of Tax Administrators Executive Director Gale Garriott have agreed that BATSA is one of the “worst pieces of federal legislation” they have seen.

    While BATSA may not be the perfect solution, there can be little disagreement that the state corporate income tax system, at a nationwide level, is inefficient. The lack of any uniformity in the method by which a multistate business’s income will be apportioned has created significant problems for both businesses and states. Businesses suffer from increased compliance burdens and the risk that more than 100 percent of their income will be subject to tax. States suffer from increased enforcement burdens and the risk that they are missing income that should be properly sourced to the state.

    As more and more businesses feel the burden of attempting to comply with multiple state tax laws, there will be increased pressure on Congress to do something to simplify multistate taxation. While the legislation has not gained traction in previous years, perhaps BATSA’s time has finally come.

    Read Comments (6)

    Cara Griffith's pictureCara GriffithFeb 26, 2014

    It seems more likely that the reason the legislation has, only twice, made it
    out of committee is that Congress does not like to delve into issues that
    affect state taxation. That said, my point in this post was not to argue in
    favor of or against BATSA. Admittedly, BATSA is not a perfect solution, but the
    issues BATSA is attempting to address should be debated and potential solutions
    considered.

    edmund dantesFeb 26, 2014

    the fact that BATSA might "cost" state government some revenue does not, alone,
    mean that the legislation is bad. what it means is that politicians in many
    states are lobbying against it. they succeeded, as they blocked even having
    hearings hearings, let alone votes on the idea.

    why would it be a bad thing for businesses to have more certainty in their tax
    obligations? why would it be bad for businesses to be taxed on 100% of their
    income, instead of more than 100% due to inconsistent state tax laws?

    seems to be BATSA is probably long overdue.

    emsig beobachterFeb 27, 2014

    Cara:

    Have you ever considered that the reason that this legislation; and, its
    previous incarnations, have never received a full hearing is that is lousy
    legislation? Proponents of this bill are seeking to extend a "temporary"
    measure, PL 86-272, to intangibles and services. You are assuming PL 86-272 is
    good law and should be extended. A number of scholars disagree with this
    assumption. For example, I rummaged through old issues of State Tax Notes and
    found two articles --one by Professor John Swain dated July 5, 2004; and, one
    by Steven Maguire of the Congressional Research Service dated July 21, 2006
    stating that this type of legislation, if not one of the worst pieces of
    legislation ever written, is bad. The Congressional Budget Office, in past
    years, has estimated that this type of legislation will cost state and local
    governments multibillions of dollars over time.

    David BrunoriFeb 27, 2014

    Cara, My problem with BATSA is that limits state taxing authority. Congress has
    the power under the Commerce Clause. I believe it should exercise that power
    only as a last resort. I do not buy the argument that physical presence is
    necessary to insure certainty. Corporations and their tax advisers don't seem
    to be suffering all that much without BATSA. But the states will take a big
    hit. I do not like the corporate income tax. And passage of BATSA will lessen
    the importance of the tax. But its still a bad idea.

    emsig beobachterFeb 28, 2014

    Edmund Dantes:

    Physical presence less selected carveouts is not the only method by which to
    provide certainty. This is the certainty that many in the
    multistate/multinational "community" want.

    Annette NellenMar 2, 2014

    The states don't like the BATSA bill, but like Marketplace Fairness. Perhaps
    there is some room for compromise here to get some version of both bills
    passed. It would seem odd though to end up with a physical presence for income
    tax but not necessarily for all sales tax. The MBNA West Virginia case of
    years ago lays out reasons why there should be a stricter nexus standard for
    sales tax than income tax. Looks like more policy and legal analysis and
    thought is needed in this debate.

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