Firms Battle States Over Taxation Without Location

The National Association of Realtors found that its
The National Association of Realtors found that its "Buy Now" campaign was not having the desired effect. (By Paul Sakuma -- Associated Press)
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By Jeffrey H. Birnbaum
Tuesday, April 8, 2008

Question: What do American Express, Microsoft, General Electric, J.P. Morgan Chase, Johnson & Johnson and Disney have in common?

Answer: They are all pressing Congress to limit states' ability to tax companies like themselves.

Now, that would be a lobbying victory.

The companies are among the corporations, large and small, that belong to the Coalition to Protect Interstate Commerce. The group is blitzing lawmakers with letters and personal visits to protest the growing trend among states to tax companies whenever they do business within their borders, regardless of where the companies' facilities are located.

The coalition says companies must have a physical presence in a state before the state can tax them. The states disagree.

At the moment, 16 states claim the right to tax a company even if it has nothing more than a Web site on someone else's server in the state. Eleven states say a company can be taxed if it has a listing in a local phone book. And 10 states say that merely registering to do business there is enough to be taxed.

"This is completely wrong," said Jeffrey Levey, tax lobbyist for Citigroup, a member of the coalition. "States should not be able to tax a company unless it has an actual physical presence there."

Lawsuits have been flying to prevent such assessments, known generally as business activity taxes. And now legislation supported by the coalition has been introduced in the Senate by Charles E. Schumer (D-N.Y.) and Mike Crapo (R-Idaho), and in the House by Virginia congressmen Rick Boucher (D) and Bob Goodlatte (R). Congressional committees also have begun to examine the issue.

But that may not be enough to force a change. This kind of corporate tax has been around a while, and so has corporate opposition to it. Attempts to get the Supreme Court to hear cases about the issue have failed twice, and so have earlier efforts in Congress.

A major reason is the steadfast position of the states and active lobbying by their representatives in Washington. The National Governors Association has spent years successfully beating back corporate efforts to prevent states from taxing companies wherever they have customers -- even if they don't also happen to have stores.

The states have studied the coalition's proposal and estimate that their treasuries would lose $6 billion a year if they were unable to tax the activities of nonresident businesses. That's a lot to give up in light of the trouble state budgets face during the economic slowdown.

Lobbyists for the association have been meeting with and writing to members of Congress, as have individual governors and their revenue commissioners.

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