Nexus: Patience and Clarity Still Required
- Jun 10, 2015 | Gail Cole
On June 2, the House Judiciary Committee’s Regulatory Reform Subcommittee held a hearing to discuss state nexus issues. Three bills were given particular priority: The Mobile Workforce State Income Tax Simplification Act of 2015 (H.R. 2315), the Digital Goods and Services Tax Fairness Act of 2015 (H.R. 1643), and the Business Activity Tax Simplification Act of 2015 (??). Although not on the agenda, remote sales tax was also addressed.
The hearing featured remarks from the following:
- Arthur R. Rosen, Partner, McDermott Will & Emery LLC
- Douglas L. Lindholm, CEO & Executive Director, Council On State Taxation
- Lawrence F. Leaman, Vice President – Taxes, Masco Corporation
- Jot Carpenter, Vice President, Government Affairs, CTIA – The Wireless Association
- Julie Magee, Alabama Department of Revenue, Chair Multistate Tax Commission
- Dan Crippen, Executive Director, National Governors Association
- Grover G. Norquist, President, Americans for Tax Reform
Hearing Chairman Congressman Marino (R-PA) called the hearing vital: “The absence of solutions that address modern economic realities puts undue stresses between state governments and businesses. Now is the time for Congress to press forward with a sustainable solution, and we have a responsibility to do so, that gives businesses, consumers and states the clarity needed to collect taxes while providing a stable business environment.”
In his opening remarks, House Chairman Bob Goodlatte (R-VA) described the unifying theme of the hearing as “No Regulation Without Representation.” He said that since a 1977 Supreme Court determination “that states may tax interstate commerce if there is a ‘substantial nexus’ to the taxing state ... states are increasingly exploiting the gray area in the law to tax and regulate beyond their borders.” When they regulate or tax out-of-state businesses, “lawmakers … dodge accountability for the burdens associated with their policy choices….” because non-residents “cannot hold them accountable at the ballot box.” Mr. Goodlatte argues that this “highlights one of the most pernicious aspects of states taxing and regulating beyond their borders.”
Ranking House member Conyers (D) of Michigan, who has served in Congress since 1965, used a large portion of his opening remarks to say the following:
“This committee should first focus on establishing without further delay a national framework that will empower the states to enforce collection by remote sellers. Unfortunately, none of the bills that are the subject of today’s hearings address the remote sales tax dilemma states are currently facing.”
He brought up the 1992 Supreme Court case Quill v. North Dakota — in which the justices decided that Congress was best suited to determine whether a remote seller must collect sales taxes — and then noted, “Yet Congress has failed to make that critical determination.” He continued:
“The House has not taken any meaningful action beyond holding hearings. We owe it to our local communities, our local retailers, and state and local governments to act this Congress. Otherwise, our local retailers will continue to be at a competitive disadvantage, and our state and local governments will continue to lose critical tax revenues as a result of remote sellers not collecting and remitting sales taxes. … Congress should not delay any further.”
When it comes to nexus and taxation, emotions tend to run high. Ideologies flare. Perhaps that is why, as Mr. Conyers pointed out, there has been considerable procrastination in Congress to resolve the issue of remote sales tax.
Representative Jason Chaffetz (R-Utah), who is working on remote sales tax legislation of his own, recently acknowledged the difficulty of the task: “If it was easy, it would have been done a long time ago.” That said, he referred to himself as an “eternal optimist” and said he believed more progress had been made on the issue during the last twelve weeks than the last 24 months.
If there is no resolution this session, lawmakers will be back at the table in November. As Rep. Chaffetz said, “States want this, businesses are frustrated, courts are getting involved now because of the lack of clarification.”
A webcast of the hearing is available here.