Manufacturers that sell/and or distribute their products outside of their home state—and that’s most Manufacturers—currently face a myriad of confusing and conflicting tax rules that cost them time, money and sometimes, business. In a tax reform options paper on Economic and Community Development released May 15th, the Senate Finance Committee did a good job of outlining some changes Congress could make to ensure that tax rules are consistent among the states, thus reducing potential double taxation and compliance costs, while also providing some certainty to states struggling to balance their budget. And that’s a win-win in our eyes.
The NAM-supported chances include:
- Establishing uniform rules for taxing digital goods and services so that manufacturers would no longer be subject to taxation from multiple states based on just one online transaction. The Digital Goods and Services Tax Fairness Act, introduced last Congress by Sens. John Thune (R-SD) and Ron Wyden (D-OR) would eliminate duplicative taxes on digital goods;
- Creating a bright-line test for when a state can assess income tax on an out-of-state employee who is temporarily working in that state. The Mobile Workforce State Income Tax Simplification Act, introduced by Rep. Howard Coble (R-NC), would establish a 30 day bright-line test before states could tax these employees.
- Permanently extending the moratorium on Internet access taxes and multiple and discriminatory taxes on electronic commerce. Without an extension of this moratorium, which expires in 2014, businesses of all sizes could be facing new taxes, further increasing the cost of doing business in the United States. The Permanent Internet Tax Freedom Act of 2013 introduced by Sen. Kelly Ayotte (R-NH) in the Senate and Steve Chabot (R-OH) in the House, would permanently ban the internet tax; and,
- Clarifying how much activity a business must engage in within a state to become subject to that state’s business activity taxes. The NAM has supported legislation (Business Activity Tax Simplification Act) to establish a bright-line, physical presence test clarifying when states can impose business activity taxes so that manufacturers will no longer be subject to punitive tax assessments by states where they have no plant or employees in the state.
While the Senate taxwriters make it clear that their paper discusses options, not proposals, we’re glad that these common-sense clarifications were part of the mix. Each of the options outlined above would further spur economic and job growth by reducing the complexities brought on by having a plethora of differing state taxation rules creating administrative, compliance, and duplicative taxation burdens for manufacturers in the United States.
Christina Crooks is director of tax policy, National Association of Manufacturers.