State Tax Groups Urge U.S. House to Oppose $3 Billion Yearly Drain on State Revenues Under Attack on 'Business Activity Tax'

July 26, 2006; 03:21 AM

The two leading state tax groups -- the Multistate Tax Commission and the Federation of Tax Administrators -- are urging the U.S. House of Representatives to oppose H.R. 1956, the so-called "Business Activity Tax Simplification Act of 2005." The MTC and FTA emphasized that the Congressional Budget Office (CBO) has calculated the cost to states of H.R. 1956 at $3 billion a year by 2011 -- the highest such adverse-impact for state tax revenues ever estimated by the independent and respected CBO.

The MTC/FTA letter is submitted by Joan Wagnon, chair of the Multistate Tax Commission and secretary of the Kansas Department of Revenue, and Cynthia Bridges, president of the Federation of Tax Administrators and secretary of the Louisiana Department of Revenue.

House consideration of H.R. 1956 could happen as early as Tuesday of this week. A Senate hearing on a companion piece of legislation is set for next week.

Representatives from the MTC and FTA noted: "H.R. 1956 represents a huge unfunded mandate that will result in a state revenue loss of $3 billion per year by 2011, according to the U.S. Congressional Budget Office. This revenue loss will leave state legislatures with the unpleasant choice of having to increase taxes on everyone else or to cut needed services. Beyond this, H.R. 1956 drastically alters current constitutional standards governing when states may impose their business activity taxes. In so doing, it subverts state tax systems by creating opportunities to structure corporate affiliates and transactions to avoid paying state taxes (and at a time when the federal government is taking every step to limit tax avoidance schemes within its own tax code). The bill also favors large multistate corporations to the detriment of small businesses and individual taxpayers."

The letter also states: "Finally, it is important that you recognize that H.R. 1956 represents the single largest state tax preemption mandate ever estimated by the Congressional Budget Office. It is, in short, a record- setting preemption of state authority -- an unfunded mandate of unprecedented proportions that is offered with no justification for its purpose. The changes sought by H.R. 1956 are those that should be left to state elected officials."

To read the Congressional Budget Office estimate, go to http://www.taxadmin.org/fta/CBO_%20HR1956.pdf on the Web.

A related MTC/FTA briefing document about H.R. 1956 is available online at http://www.mtc.gov/ and http://www.taxadmin.org/.