Manufacturers of all sizes continue to be bombarded with unexpected and punitive tax assessments by states where they have no physical presence—that is, no plant and no employees in the state. This persistent and growing problem increases their tax burden and injects even more uncertainty into business planning.

Fortunately there is help in sight. Legislation currently pending in Congress—the “Business Activity Tax Simplification Act,” H.R. 1439—would establish a bright line, physical presence test clarifying when states can impose business activity taxes, e.g. state income tax, on out-of-state companies engaged in interstate commerce.

This is smart legislation. It would allow business taxpayers to make investment plans and hiring decisions without the threat of random state tax assessments and costly litigation. State business activity taxes are particularly problematic for small and medium size manufacturers. Typically these companies don’t have in-house tax departments to navigate their way through the time consuming paperwork associated with these taxes, which in some cases include penalties and interest.

Kudos to the Los Angeles Business Journal for an excellent article on one company’s experience with these random state taxes. Bobrick Washroom Equipment, a medium size manufacturer in North Hollywood, CA, spent $185,000 appealing one state’s tax assessment, and spent an additional $100,000 to settle the case. This is real money to a company that would rather spend it on expansion and job creation rather than lawyers and fees.

Policy makers would be wise to enact H.R. 1439 to help provide some tax certainty in a very uncertain tax climate.

Monica McGuire is senior director-tax policy, National Association of Manufacturers.

Manufacturers have continued their strong opposition to increasing taxes on business owners in the midst of the most serious economic downturn since the Great Depression. Last week we urged the Senate to oppose an anti-growth tax proposal to create a new permanent surtax on individuals with income over $1 million. Earlier this week Senator Marco Rubio (R-FL) raised our opposition to the surtax when questioning Treasury Secretary Geithner about President Obama’s plans for deficit reduction and job creation. 

We continue to believe that reform of our anti-growth tax system is critical to address our nation’s long term fiscal and economic challenges and we have long warned that tax increases could put more jobs at risk at a time when the unemployment rate already hovers above 9%.  Senator Rubio echoed manufacturers’ position in the excerpt below from Tuesday’s Small Business & Entrepreneurship Committee hearing. Here is an excerpt from Senator Rubio’s remarks:

“The manufacturers say the same thing, the National Association of Manufacturers says it’s a job killer… What about this? This is a quote from the President.  He said that, ‘the last thing you want to do is raise taxes in the middle of a recession because that would just suck up, that would take more demand out of the economy and put business in a further hole.’”

History has shown us very clearly that tax hikes, even speculated ones, significantly affect the way business act in the present and plan for the future.  Plain and simple, it throws up yet another barrier to job creation and economic growth.  If we’re serious about putting Americans back to work and returning to prosperity, we need comprehensive tax reform that will result in a pro-growth and pro-job creation tax code and that take tax hikes.

Yesterday’s Washington Post “Outlook” section included a column entitled “5 Myths about Millionaires”  that seeks to dispel some of the myths that are central to the need for the so-called “Buffett Rule.”

               3. Millionaires pay proportionately less income tax than poorer people.

In a speech on Monday, Obama said raising taxes on millionaires isn’t class warfare, but “math.” His math may be off: According to the IRS, those with adjusted gross incomes of more than $1 million paid an average of 23.3 percent in federal income taxes in 2008; those earning between $100,000 and $200,000 paid 12.7 percent; and those earning between $50,000 and $100,000 paid 8.9 percent. Nearly half of American families don’t make enough money to pay federal income taxes at all.

Quite simply, despite what the President and his advisors are saying in interviews, the nation’s top earners already pay the lion’s share of federal income taxes. And increasingly these earners are the nation’s job creators. And a review of the facts makes this clear.

The NAM has long advocated for making permanent the lower tax rates on small and medium size manufacturers. More than 70 percent of manufacturers operate as “flow through” entities and pay taxes at individual rates. Raising taxes on these and other businesses that operate in this manner will only hurt jobs. In 2008, these types of entities employed 54 percent of the private sector workforce.

In his testimony to the U.S. House of Representatives Committee on Budget on September 14^th, Scott Hodges, President of the non-partisan Tax Foundation pointed out that:

Fully 68 percent of private business income is earned by taxpayers with AGI above $200,000—the target range of President Obama’s proposed tax rate increases. Some 35 percent of all private business income is earned by taxpayers with AGIs above $1 million.

Another way of looking at the distribution of business income is to see how many taxpayers at the highest tax brackets have business income. According to Tax Policy Center estimates, more than 74 percent of tax filers in the highest tax bracket report business income, compare to 20 percent of those at the lowest bracket…more than 40 percent of private business income is earned by taxpayers paying the top marginal rate. (continue reading…)