Expected Revenue Loss from BATSA Substantially Less Than Previously Estimated
New Detailed Analysis Examines Industry-Specific and State-Specific Impacts of Legislation
Washington, DC, July 24, 2006 – The revenue loss that states and localities can expect from the enactment of the Business Activity Tax Simplification Act of 2005 (H.R. 1956, S. 2721) is approximately 0.8 % of total business activity tax collections, or less than 0.1% of total state and local taxes paid by the business community, according to a new study released today by the Council On State Taxation (COST). The study, prepared by Ernst & Young LLP, shows a total estimated annual revenue loss of $434 million at fiscal 2005 levels of tax collections.
The proposed legislation establishes a uniform, minimum physical presence standard for determining when multistate firms are taxable in a state. The objective of the bill is to provide greater uniformity in state business taxation, to reduce the compliance costs for businesses and administrative costs for tax agencies, and to substantially reduce the increasingly expensive litigation directly related to the lack of clear and consistent nexus standards.
“This new study confirms what we thought was obvious: very little tax is currently being paid by businesses that have very little property or payroll in the taxing jurisdiction,” said Doug Lindholm, COST’s President and Executive Director.
The study is based on a detailed section-by-section, industry-by-industry, and state-by-state analysis of the bill’s expected impact. The study looks at each of the major state and local taxes that will be affected by H.R. 1956 and estimates what portion of the taxes are currently paid by firms without an instate physical presence. These firms will no longer be subject to state and local business activity taxes under the bill’s physical presence nexus standard.
Comparison with Other Studies
In addition to providing new tax impact estimates based on economic measures of physical presence and the flow of economic activity across state borders, the study also discusses similarities and differences in tax impact estimates reported by the Congressional Budget Office and the National Governor’s Association. “While the three studies start with roughly the same total for business activity taxes, the impact estimates vary widely because of fundamentally different views of how businesses will respond to the adoption of a uniform nexus standard,” according to Robert Cline, author of the new study and National Director of State and Local Tax Policy Economics at Ernst & Young. “The CBO and NGA studies assume that businesses would implement major restructurings to reduce their state and local tax payments. Over time these two studies assume that restructuring will more than triple the revenue loss.” As explained in the E&Y study, because there is no empirical basis for these assumptions, these are more speculative estimates than those normally used in the state legislative process.
- Contact Information
- Joseph R. Crosby
- Legislative Director
- Council On State Taxation
- Contact via E-mail
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