Small Business Speaks Out on Unfair Taxation

By February 14, 2008Policy Experts, Taxation

For years, manufacturers of all sizes — particularly smaller ones — have been blindsided by unexpected tax bills from states where they have no real connection, e.g., facilities or employees. The House Small Business Committee this morning took a closer look at the problem and an NAM member from California was willing to share his frustrating and expensive story with the committee.

In his statement, Jerald Otchis, Vice President Finance and Administration at Bobrick Washroom Equipment, Inc. in North Hollywood, explained that his company has no problem paying business activity and other taxes in the five states where they have facilities — California, Colorado, New York, Oklahoma, Tennessee. It’s the tax bills from other states that cause them concern. In fact, the company right now is challenging an assessment from Texas — an effort that already has cost them more than $100,000 and an untold amount of staff time. And it’s not over yet.

Here’s the deal — different states have different rules about taxing out-of-state companies and challenging these tax assessment can be frustrating, timing-consuming and expensive. Unfortunately, many times the amount of taxes involved in an individual case is small in comparison to the cost of challenging, making it less costly for a company — particularly a smaller one—to pay the taxes. But all these extra taxes do add up.

Fortunately, help is on the way. Last week House Judiciary Committee members Rick Boucher (D-VA) and Bob Goodlatte (R-VA) introduced the Business Activity Tax Simplification Act (H.R. 5267) that would establish a bright-line physical presence test to determine when a state can tax out-of-state companies. There’s a similar bill in the Senate. NAM is pushing for quick action on the legislation and we’re hoping that Mr. Otchis’ story and others like his will help spur legislators to act.

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  • Timothy Steele says:

    Pennsylvania is trying to impose their state franchise tax on my company. MicroSpec is a New Hampshire corporation with no physical presence in PA. All operations of MicroSpec are executed in NH and our contracted representatives who may call on our PA clients are not authorized to accept orders or even quote business inquiries this is all executed in NH! As a contract manufacturer the custom parts we produce are shipped FOB our facility in NH and it is stated on our quotation that the governing law is that of NH. So we’re fighting PA’s attempt to tax us in NH.

    Any suggestions will be welcomed.

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