Dear Chairman Marino, Ranking Member Johnson, and Members of the Subcommittee:
Thank you for examining “nexus” issues as they pertain to the taxation of interstate commerce. It is imperative for the federal government to clarify matters in this area so as to ensure that taxpayers are treated fairly, that income and transactions are not taxed multiple times, and that burdens on interstate commerce are minimized to the greatest possible extent. With this in mind, we respectfully submit the following recommendations.
Support H.R. 1643, the Digital Goods and Services Tax Fairness Act. The dizzying rise of music downloads, mobile-phone apps, and other digital products has been viewed by some state and local tax officials as merely an opportunity to collect additional revenues. Given that consumers can now be charged taxes from several jurisdictions on the same purchase (e.g., from the state where the seller’s server is located, from the state where the customer’s phone bill is sent, from the location where the consumer downloads the item), Congress should establish boundaries for these practices. H.R. 1643 prudently prevents states from piling on repetitive download taxes, and requires an affirmative legislative act by a state (as opposed to an administrative edict) in order to tax digital goods.
Support H.R. 2315, the Mobile Workforce State Income Tax Simplification Act. In today’s economy, millions of Americans accept temporary assignments outside their state of residence or traditional workplace location. Yet, some state and local tax laws are horrendously out of touch with this fact, causing unnecessary compliance headaches for workers and employers alike. H.R. 2315 would set federal guidelines for the way states and localities can impose earnings taxes on most nonresidents, including a minimum threshold of time spent in-state (more than 30 days) before compliance requirements are triggered. All other tax obligations in the worker’s or employer’s home state would remain unchanged. Such legislation, which would help cut down on the billions of hours and dollars that are spent on tax compliance by employees and employers every year, is vital in today’s increasingly mobile economy.
Support H.R. 2584, the Business Activity Tax Simplification Act. The Business Activity Tax Simplification Act is a worthy reform measure that would clarify the nexus rules governing state assessment of income-based taxes. By establishing a clear nexus test, the bill would ensure that only businesses having employees or property physically present within a jurisdiction are subjected to business activity taxes in that jurisdiction. The legislation would promote fairness, minimize litigation, and create a legally certain business climate that encourages companies to invest and expand interstate commerce.
NTU applauds the Subcommittee for the consideration of these important, pro-taxpayer bills. As it evaluates the need for federal legislation to clarify interstate tax coordination and nexus issues, we strongly urge the Subcommittee to also examine three related issues.
Support H.R 1087, the Wireless Telecommunications Tax and Fee Collection Fairness Act of 2015. This bipartisan legislation would require that a financial transaction exist between a buyer and seller in order for a state government to compel the seller to collect taxes. Such a policy would benefit consumers and businesses alike by providing much-needed clarity to the tax treatment of certain purchases. By requiring this type of nexus to exist before taxes can be collected, H.R. 1087 would effectively end the arbitrary and unfair attempts of some state governments to collect taxes from businesses that were not directly involved in a commercial transaction. Additionally, establishing a financial exchange test would help to properly delineate the appropriate boundaries between interstate and intrastate transactions.
Support the Multi-State Worker Tax Fairness Act. This bill would prohibit states from taxing nonresident remote workers during periods in which they are physically present in a different state. In doing so, the legislation would bar states from using a “convenience test” to tax multi-state workers. Passage would prevent a potential tax nightmare for the millions of telecommuters (and counting) across the nation, as well as for their employers. By addressing the contentious issue of tax apportionment, this bill is a logical and necessary complement to the Mobile Workforce State Income Tax Simplification Act.
Address Internet Sales Tax Issue in a Pro-Taxpayer Manner. The tax treatment of interstate retail transactions is a complex issue that requires Congressional action. However, several of the proposals that have garnered attention would be disastrous. Most notably, the so-called Marketplace Fairness Act would force the average impacted household to pay an additional $360 in state and local sales taxes annually, according to research by our educational affiliate, National Taxpayers Union Foundation. Additionally, the compliance burden on an individual, small Internet retailer could amount to tens of thousands of dollars and hundreds of hours of staff time. This is simply untenable.
Congress must find a better solution that provides states with clarity while avoiding harm to small businesses. To this end, we would suggest pursuing a solution that adheres to the seven principles set forth by Chairman Bob Goodlatte in 2013. They are: 1) Tax Relief, 2) Tech Neutrality, 3) No Regulation Without Representation, 4) Simplicity, 5) Tax Competition, 6) States’ Rights, and 7) Privacy Rights.
Abiding by these principles will give all stakeholders the best opportunity to achieve a fair, pro-taxpayer solution that allows the Internet economy to continue to flourish.
Thank you for considering our comments as the Subcommittee addresses these issues of critical importance to taxpayers.
Sincerely,
Brandon ArnoldExecutive Vice President