The Multistate Tax Commission’s (MTC) most recent document explaining that group’s opposition to the Business Activity Tax Simplification Act (BATSA) offers seven reasons for opposing the legislation. Each of those reasons quickly evaporates when one examines the relevant facts. While the MTC’s comments appear persuasive at first glance, a more thoughtful analysis reveals that the MTC’s reasoning is flawed.
1. Assertion: BATSA is an “anti-jobs” bill.
False. BATSA creates certainty regarding the so-called nexus rules as well as a certainty for business with respect to their state tax liabilities that will allow them to invest confidently and create more jobs.
2. Assertion: BATSA would hurt small business.
False. BATSA protects small businesses that do not have the resources to combat onerous tax assessments. BATSA also does not disturb any of the tools by which states can attack tax shelters.
3. Assertion: BATSA would upset well-established legal and policy principles.
False. The Supreme Court has yet to hear an economic nexus case, and it is counter-intuitive that the physical presence nexus standard set by the Supreme Court for indirect taxes, such as sales taxes, should be higher than the nexus standard for direct taxes. BATSA does not upset well-established principles. In fact, it upholds the well-established principle that a government’s authority extends only to its borders.
4. Assertion: BATSA would unnecessarily intrude upon state taxing authority, flouting the Tenth Amendment.
False. There are countless examples of congressional regulation of interstate commerce, including the law BATSA seeks to modernize, Public Law 86-272. Congressional action on the authority of states to impose a tax on interstate commerce is unquestionably appropriate.
5. Assertion: BATSA would blur the rules for taxation.
False. BATSA establishes clear rules and also conforms the nexus standard to the bright-line rules used to determine the “permanent establishment” jurisdictional standard for international taxation.
6. Assertion: BATSA would deprive states of needed revenue.
False. The studies relied upon by the MTC that indicate BATSA results in a loss of revenue use methodologies that are fundamentally flawed and overstate the potential impact of BATSA.
7. Assertion: There is a workable alternative out there for BATSA’s physical presence standard.
False. The so-called factor-presence nexus alternative is deeply flawed and ignores basic constitutional principles. The proposal decouples nexus from the requirement that a taxing authority must provide benefits or protections to a taxpayer before a tax is imposed and would significantly increase the number of businesses subject to tax.