Austin-American Statesman, Published: 10:46 a.m. Thursday, May 17, 2012

States are getting desperate for revenue, a fact I know firsthand. They hunt down out-of-state businesses like mine and slap them with massive tax assessments.

My company, Fastsigns, is a 27-year-old graphics and visual communications franchisor based in Carrollton. It’s a small business with 109 employees. So when a state unexpectedly sends us a tax bill for thousands of dollars — a state in which we don’t have any employees, offices or even a stick of inventory — it’s a very big deal and an expensive problem.

Seven states — Arizona, California, Missouri, Oregon, Pennsylvania, South Carolina and Wisconsin — have come after us in the last few years. We ended up writing more than $115,000 in checks to those states. And as I write this, an auditor from Washington state is sitting in our offices looking for more money to force us to hand over. It’s outrageous. We have almost nothing to do with those states. We have no direct sales there. As a franchisor, we collect royalties and fees from our franchisees across the country; we have no real assets in most states.

Yet these days, states are increasingly trying to tax our franchise licenses. We can’t plan for these taxes. We don’t know whether a state is going to send us a bill. And when one does, it’s often an unhappy surprise.

Fastsigns has paid these tax assessments because doing so is less expensive than than filing legal challenges. Litigation would require man hours and lawyers we don’t have.

But if the problem continues to get worse — and I think it will — we soon might not be able to write a check to every state that comes knocking. With the taxes we paid last year, we could easily have hired another employee. In this economy, shouldn’t we be encouraging businesses to grow rather than stripping them of funds for expansion?

We know we aren’t alone. There are more than 825,000 franchise businesses in the U.S., and I am sure that many of them are the targets of state tax collectors. Combined, these franchisors generate $2.1 trillion in revenue and employ nearly 18 million people. That’s significant.

Fastsigns has 470 franchised locations across the country; each of these dutifully pays federal and state income taxes to the states where they are located. And that should be enough. Can you imagine if we — as the franchisor — were subject to income taxation by every state in which we have a franchisee? I’m not sure we would survive.

Luckily, Congress has a solution. The bipartisan Business Activity Tax Simplification Act would stop states from imposing unfair, unjustified corporate income taxes on U.S. businesses. It would make clear that states can only impose corporate income and similar taxes on companies that have a meaningful physical presence in that state. It would set a uniform standard for all states so businesses wouldn’t have to wonder year to year what their tax liability might be.

The act, cosponsored by U.S. Reps. from Virginia Bob Goodlatte, a Republican, and Bobby Scott, a Democrat, cleared the House Judiciary Committee last summer and awaits a vote in the full House. The Supreme Court has made plain that a physical presence — not an economic presence — is needed for a state to impose corporate income taxes on companies like ours. Now Congress can put that into law.

Fastsigns is a small but growing company. We pay the appropriate taxes to the states where we have employees and property. We aren’t trying to avoid paying our fair share. But we believe we are being asked to pay more than our fair share.

Congress keeps talking about fixing the economy. Enacting the Business Activity Tax Simplifcation Act would be a good start.

Monson is the chief executive officer of Fastsigns.

The Washington Times, Tuesday, May 15, 2012

By Pete Vegas

As president of a national food company, I thought I had seen it all. Until, that is, the state of Washington decided to send me a $180,000 tax bill for simply visiting the the state. I understand that states are starved for revenue these days, but Washington has gone too far. Based on one visit over a seven-year period, it decided that my company, Sage V Foods, should be required to pay business and occupation taxes. Washington made that determination even though Sage V Foods has no employees, no property, no sales offices and no inventory in the state – nothing.

We are a relatively small business based in Los Angeles with fewer than 250 employees. We have production facilities in Arkansas and Texas. Our only real connection to Washington is the handful of customers to whom we sell our rice-based products. Our largest customer in Washington blends our products to create a special coating for french fries that keep them crisp under heat lamps. Almost all of those fries are shipped to fast food chains outside the state.

Washington has a sneaky way of catching companies in its tax trap. A few weeks after one of our trucks stopped at a weigh station during a routine delivery, we received a questionnaire in the mail from the Department of Revenue. The letter seemed innocuous enough, but it absolutely wasn’t.

It asked whether one of our employees visited the state once a year for business purposes. We answered yes, that was possible, and Washington pounced. It audited us and imposed seven years’ worth of taxes, interest and penalties. Washington claims Sage V Foods has a substantial connection to the state because we, on very rare occasions, cross its borders to do business. That’s outrageous.

I could have opted to pay the tax bill and move on as so many other small-business victims do. But I didn’t. The stakes are too high not only for my company but for hundreds if not thousands of other businesses. Each time a company is forced to pay up – or fight a baseless tax bill in court – it is reallocating resources that could be better used to hire new employees, expand operations or increase salaries.

I continue to appeal Washington’s tax assessment; I lost the first round so I decided to appeal my case to the Washington State Board of Tax Appeals. I know it’s an uphill battle. No one has won a similar appeal in years. But I am going to keep fighting because the assessment is blatantly unfair.

My war against Washington’s tax practices sometimes feels like a solo mission but it isn’t. Congress is considering bipartisan legislation that would make clear that a state can only tax an out-of-state business if that business has a “substantial” physical connection to that state. The proposal would set a uniform, bright-line standard for all states so companies would no longer have to wonder what the rules are.

The Business Activity Tax Simplification Act, sponsored by Rep. Bob Goodlatte, a Republican, and Rep. Robert C. “Bobby” Scott, a Democrat, passed the House Judiciary Committee last summer and awaits a vote in the full House. Support for the bill has been growing.

Sage V Foods began as a subsidiary of Comet Rice in 1992. Today, our ingredients can be found in every major grocery store in products from granola bars to baby cereal. We do $100 million in sales a year. We’ve always paid the appropriate taxes and played by the rules.

What Washington is doing to out-of-state companies such as mine is just plain wrong and has to stop. If tax collectors there are going after companies simply for crossing state lines, what’s next? Tax assessments for dialing the area code?

Pete Vegas is president of Sage V Foods.

FOR IMMEDIATE RELEASE:

Contact:  Erin Billings @ ebillings@bgrpr.com; 202-333-4936        

Washington, D.C., April 25, 2012 – Members of the Coalition for Interstate Tax Fairness and Job Growth today urged the Senate Finance Committee to support the Business Activity Tax Simplification Act (BATSA) to stop states from imposing unfair and unjustified corporate income taxes on U.S. businesses.

BATSA, sponsored by Virginia Reps. Bob Goodlatte (R) and Bobby Scott (D), is one of the few pieces of bipartisan legislation that Congress could pass this year to create jobs and improve economic growth. It would clarify that states can only impose corporate income and similar taxes on companies that have a meaningful physical presence in that state. The measure cleared the House Judiciary Committee last summer and awaits a vote in the full House.

“The Coalition for Interstate Tax Fairness and Job Growth believes the time is now for Congress to act on BATSA to ensure a clear, uniform standard for state corporate income taxation,” said the Coalition’s Chairman, Jack O’Rourke. “American businesses are being blindsided with outrageous tax bills from states where they don’t even have any property or employees. BATSA can fix this. We respectfully ask the Senate Finance Committee to get behind this important legislation.”

The Coalition for Interstate Tax Fairness and Job Growth, which represents the interests of trade associations, tax groups and large and small businesses nationwide, was founded in 2007 and reorganized earlier this year. It believes BATSA is one of the most important bills Congress could tackle this year to improve the economy and the fairness of the tax system.

“More and more, states are trying to impose corporate income or similar taxes on U.S. businesses located outside of their borders,” O’Rourke said. “These companies are put in a no-win situation: pay a baseless tax bill or fight it in court. Congress should correct this so that companies can grow and hire, rather than be forced to shell out tens of thousands of dollars in unjustified taxes and litigation costs.”

The Coalition for Interstate Tax Fairness and Job Growth appreciates the opportunity to be part of today’s Senate Finance Committee debate on state taxation. It believes BATSA is a vital part of any Congressional tax reform effort.

More information about the Coalition and BATSA can be found at: http://www.interstatetaxfairness.com/.

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SOURCE: The Coalition for Interstate Tax Fairness and Job Growth.

• Download the press release (pdf)
• Read Noteworthy Testimony from April 25 Senate Finance Hearing on State Taxation

Richmond Times-Dispatch

April 25, 2012

I’m the chief financial officer of a small business here in Richmond, but sometimes I feel like a piggy bank for every state in the union that needs some extra cash.

The latest state that came knocking was Wisconsin. Last year, it sent my company — Outdoor Living Brands –— a tax bill for a few hundred dollars. We paid up even though we don’t have a single employee, piece of inventory or even an office there.

Sadly, that’s the way the tax system seems to work these days.

Wisconsin, in fact, is the eighth state that has dinged us for tax payments. The others are Texas, Ohio, North Carolina, Arizona, South Carolina, Minnesota and, of course, Virginia.

I certainly understand Virginia. It’s where our headquarters is and where our 30 employees work hard to earn the $4.6 million in revenue that we’ve lately been earning each year.

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Or watch the video at video.foxbusiness.com

It’s tough enough for U.S. manufacturers to make ends meet in this economy. After paying the bills and covering payroll and expenses, many businesses are simply hoping to stay afloat, let alone turn a profit.

So imagine being blindsided with a $376,000 tax bill from a state in which your company has no property, no sales offices, no bank accounts, no agents and not a single employee. In fact, the company’s sales in the state for the year in question were $100,000 less than the surprise tax assessment.

That’s exactly what happened recently to the well-known company I work for, Monterey Boats, a 27-year-old boat manufacturer based in Central Florida. The state of Michigan issued Monterey a 2010 gross receipts tax notice for that amount and the result could be crushing for our 250 employees.

Monterey Boats’ sales in Michigan run roughly about 2 percent of its overall sales. That may not sound like a lot, but the potential loss is enormous since Michigan, with its beautiful lakes, has a large boating community. If we were to stop doing business in Michigan due to the unreasonable and inconsistent tax rules, we would be in serious trouble. We would have to cut staff and trim payroll even more than we have already, and we couldn’t even think about expanding. It would be a serious blow.

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By Douglas L. Lindholm, president and executive director, Council On State Taxation – 03/29/12 09:08 AM ET

Taxes are the price we pay for a civilized society. But few Americans realize the scope and breadth of the taxes businesses pay and how uncertain and unpredictable that tax burden has become.

Most Americans would be shocked to learn that the 50 states have 50 different sets of standards for determining when an out-of-state corporation is subject to a state’s corporate income tax. These rules are so vague and unclear that costly litigation is often unavoidable. It is deplorable — embarrassing even — that the most advanced and sophisticated economy on the planet labors under such a confusing, uncertain and unfair system.

Dozens of states — desperate for revenue without political consequences — have been trying for years to collect taxes from businesses that aren’t located within their borders. They regularly assess millions of dollars a year in corporate income and similar taxes on companies simply because those companies have an “economic presence” in their borders. This includes customers with credit cards, bank loans, software or intangibles such as trademarks, trade names or advertising. 

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Supporters of a physical presence-based national nexus standard for state business activity taxes sent a letter to U.S. House  congressional leaders on February 29 urging passage of the Business Activity Tax Simplification Act of 2011  (BATSA). Led by the Coalition for Interstate Tax Fairness and Job Growth, 150 businesses and trade groups signed the  letter to U.S. House Speaker John A. Boehner, R-Ohio, and Minority Leader Nancy Pelosi, D-Calif., calling for enactment of  H.R. 1439. The proposal also includes the Joyce approach — rather than the Finnigan approach — for calculating the sales  factor numerator in a unitary combined group if an entity in the group does not have nexus in the state.

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• Read the letter: Coalition Letter to House Speaker Boehner and Democratic Leader Pelosi
• View the legislation: Business Activity Tax Simplification Act of 2011

FOR IMMEDIATE RELEASE:

Contact: Bill Turenne, bturenne@bgrpr.com; 202- 333-4936

Washington, D.C., Feb. 29, 2012 – More than 150 businesses, trade associations and taxpayer groups from across the country penned a letter to House Speaker John Boehner and Democratic Leader Nancy Pelosi today, urging them to pass the Business Activity Tax Simplification Act (BATSA) this year to put an end to unfair, confusing and costly state corporate income taxation.

The letter represents the interests of small and large businesses and dozens of industries nationwide including retailing, trucking, banking, high tech, food services, manufacturing, shipping, medicine, media and many others. The signatories share the goal of getting Congress to act this year on BATSA (H.R. 1439), a bipartisan measure sponsored by Reps. Bob Goodlatte (R-Va.) and Bobby Scott (D-Va.) that would set a uniform standard for state taxation of the income of non-resident companies.

Under BATSA, a version of which has been introduced in every Congress since 2002, a state would only be able to impose income-based taxes on companies that have a physical presence in the taxing state. The bill would prohibit states from taxing the income of companies that merely solicit sales in the state. BATSA would NOT affect sales taxes.

“It is vital that Congress enact this important legislation this year,” said Jack O’Rourke, chairman of the Coalition for Interstate Tax Fairness and Job Growth, the leading advocate for BATSA. “These businesses, trade associations and taxpayer groups understand in a very real way the consequences of Congressional inaction: they will be forced to continue to pay unfair and unjustified corporate income tax assessments or engage in costly and time-consuming litigation to fight them. As a result, businesses will be deprived of money they need to expand, hire more employees or increase salaries. That’s bad for our economy.”

The letter explains to Speaker Boehner and Leader Pelosi why BATSA should be approved this year. Among other things, BATSA would create a “bright line” standard for business activity taxation, eliminate confusion for state tax administrators and businesses and reduce audits, lawsuits and guess work. It would also encourage economic development and job growth.

“Enactment of BATSA would lead to greater investment in U.S. business growth and jobs by clarifying the standards for imposition of business activity taxes by states and localities on multi-state businesses by resolving widespread uncertainty … if the bill were to become law, businesses would not be avoiding taxes. They would simply be paying taxes in the proper jurisdictions,” the letter says.
The House Judiciary Committee approved BATSA by voice vote and reported it to the full House last summer.

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SOURCE: Coalition for Interstate Tax Fairness and Job Growth: www.interstatetaxfairness.com.

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