An oped in Roll Call by Reps. Bob Goodlatte (R-Va) and Bobby Scott (D-Va.) highlights the importance of the Business Activity Tax Simplification Act, or BATSA, to the franchise business model. IFA is a strong supporter of BATSA, which would provide a federal preemption law to prevent state departments of revenue from taxing out of state franchisors without a physical “nexus” in that state and bring greater certainty to franchise small businesses seeking to comply with state tax laws.
According to the oped:
The legislation would clarify that a state or locality can’t levy a direct tax on a business unless the business has employees, an office or property in a state for more than two weeks during the year. The standard, if enacted, would reduce litigation, improve certainty and create greater investment in new jobs.
BATSA would apply to business-activity taxes, including income taxes and franchise taxes, but would NOT apply to transaction taxes, such as sales taxes. The famous, years-long battle over when sellers should collect state sales taxes on purchases made online is a separate question not affected by BATSA in any way.
BATSA is a pleasant anomaly in Washington: a thoroughly bipartisan bill with nearly as many Democrats as Republicans onboard. BATSA has also overwhelmingly been approved twice by the House Judiciary Committee.
BATSA would prevent cases such as a recent Iowa Dept. of Revenue tax assessment on Delaware-based KFC that the company owed more than $248,000 in unpaid corporate income taxes, including interest and penalties, in 2001, despite all KFC restaurants in Iowa being held independently by franchisees. The taxes were for 1997 to 1999. IFA followed an amicus brief to the U.S. Supreme Court to overrule this assessment which was supported by the Iowa Supreme Court, however the petition was overturned.
BATSA would codify the traditional physical presence standard for franchise businesses operating across multiple states and relieve small businesses from unnecessary audits and tax bills in jurisdictions where they have no tangible property or staff. While most franchise companies have franchise locations in many states, in a large majority of instances it is local entrepreneurs that own and operate franchise businesses. These businesses provide jobs, services and economic activity for local communities across the country.
If you would like to lend your franchise business to a coalition letter IFA is preparing to deliver to Congress to urge passage of BATSA, please contact Jay Perron at firstname.lastname@example.org.
Posted by Matt Haller, IFA Senior Director of Communications