For proponents of a sustainable, fair state corporate income tax in 2008, there's good news and there's bad news. The good news is that there is growing awareness of the damaging tax loopholes that are eroding the state corporate income tax base, and that states are enacting reforms such as combined reporting to help eliminate these loopholes. The bad news is that some lawmakers in Congress are bent on enacting a bill, the "Business Activity Tax Simplification Act" or BATSA, that would enshrine an entirely new class of tax loophole into federal (and state) law.
At the heart of the controversy is a straightforward problem: states want (reasonably) to tax the activities of multi-state corporations doing business within their boundaries, but there's no single agreed-upon answer to the important question of how much in-state activity is required before a company should be taxable-- or, in tax-speak, the level of activity that generates "nexus" between a business and a state. The BATSA bill would impose such a definition on states-- and would do so in a way that could sharply curtail the ability of states to tax multi-state corporations fairly. A pair of new reports from the Center on Budget and Policy Priorities outlines the bill's negative impact on state tax systems and explains why the arguments of pro-BATSA lobbyists are misleading.