Business tax bills seek limits on DOR in taxing options
Some members of the Mississippi Legislature fear last summer’s state Supreme Court ruling that bumped the one-year Mississippi tax bill of Atlanta’s Equifax Credit Information Services from zero to over $700,000 will tarnish the state’s “business friendly reputation.”
To undo the perceived damage, two Republican-sponsored bills designed to make it harder for the state to assess taxes on multistate businesses based on revenue earned, a standard called the “market-approach,” are moving ahead in both the House and Senate.
Part of the push is coming from the Council on State Taxation, a nonprofit trade association of more than 600 multistate corporations, that late last year downgraded the state’s grade among “The Best and Worst of State Tax Administration” from a B-plus to a C-plus. COST cited the Equifax case and indicated a grade reassessment would come with adoption of legislation to diminish the effects of the Equifax ruling.
Until the ruling in the Equifax case, Mississippi had followed the Uniform Division of Income for Tax Purposes Act, or UDITPA, established in 1957 by the National Conference of Commissioners on Uniform State Laws to remedy apportionment issues associated with taxpayers’ operating in multiple states. The UDITPA method applies a weighted performance-based standard in assessing taxes on the sales of services.
The Mississippi ruling — which has caught the attention of state taxing authorities around the country — upheld the state tax commissioner’s use of market-based standards in assessing tax liabilities for multistate companies such as credit reporting service Equifax. Using the standard UDITPA cost-of-performance method, Equifax computed its tax liability as zero. The state Department of Revenue later declared the standard method did not properly reflect the company’s business activities in the state.
The result: A tax bill for the year of more than $700,000 based on revenues generated in the state. HB 799, which cleared the House last Friday morning on 1 113-2 vote, and SB 2487 would allow the Department of Revenue to apply the market-based standard only when it can present “clear and convincing evidence” that the standard apportionment method does not fairly represent the taxpayer’s activity. Both SB 2487, which has passed the Senate Finance Committee and is on the calendar for a floor vote at some point, and HB 799 would also force the state’s DOR to present “clear and convincing evidence” to support requests for out-of-state companies with operations in Mississippi to provide the DOR with combined tax returns.
The DOR, in appearing before the Senate Finance Committee, projected that creating hurdles to applying the market-standard on tax apportionment would cause the state to lose “significant” tax revenue.
Bill author Sen. Joey Fillingane, a Republican and chairman of the finance panel, acknowledged the revenue trade-off but emphasized his measure ensures the state is “not too onerous” in its pursuit of tax revenue from multi-state businesses. With the Equifax case closed, Fillingane said he and others, including the Mississippi Economic Council (which serves as the state’s chamber of commerce) decided the impact of the ruling must be mitigated.
“The issue that the Equifax case was about affects many businesses across the state,” the senator from South Mississippi noted. Fillingane said that since the lawsuit is final, “I don’t feel we are inserting ourselves into ongoing litigation.”
He said he expects some of the fiscal impact on the state’s treasury will be eased through negotiations underway with the DOR. The Mississippi Economic Council is trying to work out some compromise language with the DOR, Fillingane said.
Lt. Gov. Tate Reeves, a Republican and Senate gatekeeper, is taking a close look at the legislation.
“He supports all efforts ensuring that our regulations don’t place unfair burdens on businesses,” said Laura Hipp, Reeves’ spokeswoman. Ron Aldridge, state director of the National Federation of Independent Businesses/Mississippi, welcomed the House and Senate bills as a way to give businesses certainty at tax time. In the Equifax case, the credit reporting company followed the standard set by the state but “they were punished for it,” said Aldridge, alluding to the interest and penalties Equifax sustained.
The 3,400-member NFIB/Mississippi is especially eager to see passage of provisions in the bills that would give the DOR discretion to waive the 10 percent penalty against businesses that challenge use of the alternative apportionment standard. Likewise, it wants passage of the provision that limits penalties and taxes to the amount still owed – not on the entire amount in dispute.
He said also is pleased that the measures would cut the current 1 percent per month interest on disputed tax bill amounts to one-half percent.
Another provision Aldridge hopes will survive eliminates the requirement that a business challenging a tax bill post a bond or be forced to “pay under protest.”
State Sen. Blount, a Democrat, tweeted after the House vote that “craziness continues: House passes HB 799, which would make it much harder for MS to keep corporations from avoiding income tax.” In a later interview, the senator from Jackson said he thinks the halving of the interest penalty and assessing interest and penalties only on the amount owed are fair measures. The other provisions leave him plenty to worry about, however.
“We need to move very cautiously,” he said, and noted the bills “have the potential for a major impact on the fair share of taxes that the state is due.”
Rep. Bobby Moak, House Democratic leader, said he has received reports the state will lose a “huge” amount of revenue from multi-state businesses through HB 799.
“I have seen some information from the tax commissioner that sort of threw some flags up,” Moak said.
The House measure, introduced by Rep. Jeffrey Smith, a former Democrat turned Republican, received only a handful of dissenting votes on its way to passage. Smith did not return phone calls seeking comment. Moak said, however, that Smith assured House members the reverse repealer in the bill would ensure it would die before coming back to the House if a “rational” measure could not be worked out in the House-Senate conference committee.
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