Tax simplification Congress can pass right now

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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 jperron@franchise.org.

Posted by Matt Haller, IFA Senior Director of Communications 

Important tax provisions to franchise businesses may expire soon

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Franchise small business owners who take advantage of important tax credits may be at risk of losing them if Congress does not act before the end of 2011. These include the Work Opportunity Tax Credit for hiring workers who qualify as members of certain target groups who have faced significant barriers to employment and the 15-year depreciation provision for restaurant improvements and new construction, retail improvements, and leasehold improvements or renovations.

IFA is part of the “Broad Tax Extenders Group” and is galvanizing support from franchise businesses who take advantage of this tax important provision to tell Congress to act, before the end of the year, to ensure franchise small businesses continue to qualify for the tax treatment you receive in 2011 beginning in January.

Any franchise business owner who signs the letter will be included on the final letter being delivered to members of Congress next week. The deadline to sign the letter is Friday, Oct. 21.

IFA will continue to urge Congress for a comprehensive solution to tax reform, rather than a piecemeal, one-off stimulus approach. As it said in a letter to all Senators last week, Congress must view reforms through a lens that ensures businesses of all sizes, and particularly small businesses like the majority of franchise businesses, are given long-term certainty and clarity regarding their future tax rates. 

Posted by Matt Haller, IFA Sr. Director of Communications