DMA Testifies Before House Small Business Committee in Support of Business Activity Tax Reform Legislation

February 15, 2008 — In testimony yesterday before the US House Small Business Committee, the Direct Marketing Association (DMA) expressed its support for the Business Activity Tax Simplification Act of 2008 (H.R. 5267). This legislation, introduced by Representatives Rick Boucher (D-VA) and Bob Goodlatte (R-VA), would require a clear physical presence standard in determining the applicability of business activity taxes (e.g., income taxes and gross receipts taxes).

In his testimony before the committee, DMA Research Strategy and Platforms Vice President Peter A. Johnson, Ph.D., noted the appropriateness of a clear physical presence standard for both business activity taxes and transaction taxes, which would include sales taxes. Dr. Johnson testified that, “without a clear physical presence test, state tax policy risks running afoul of the Constitution’s Interstate Commerce Clause, and becoming economically burdensome and discriminatory.”

Dr. Johnson went on to state that, “Direct marketing is increasingly economically efficient for small business access to the national marketplace, and discriminatory taxes placed on direct marketing are proportionately more burdensome to small businesses than to large firms. Further, based on their very nature, business activity taxes are rational for local commerce; whereas, they present a discriminatory burden to interstate commerce that does not have a clear physical presence in the locality.”

In addition, Dr. Johnson told the House committee that business activity taxes, by their very nature, represent a discriminatory impediment to the natural evolution of interstate commerce in its choice of business channels.

Commenting on today’s testimony, DMA Executive Vice President for Government Affairs & Corporate Responsibility Steven K. Berry said, “We firmly believe in the spirit of the US Supreme Court’s landmark 1992 Quill decision that it is imperative to have a clear physical presence to be subject to that jurisdiction’s taxes. It would be against this precedent to have any tax-collection requirements that would stifle the open market.”

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