Don't Be a Victim of Good Intentions

Aug. 11, 2006
This legislation is a priority to the high tech community because it will ensure that businesses are not subject to double taxation at the state level.

“This legislation is a priority to the high tech community because it will ensure that businesses are not subject to double taxation at the state level.” That’s what Rep. Bob Goodlatte (R-VA) said when the House Judiciary Committee passed the Business Activity Tax Simplification Act of 2005 (H.R. 1956). “This would facilitate the continued growth of e-commerce, job creation and the overall strength of the American economy,” he continued.

But what about all of those people who live in the real world of physical goods? As written, the law would harm users of public warehouses and third-party logistics services whose only presence in a state is the inventory that is passing through those facilities. Rep. Goodlatte appears to have accepted the arguments of the Internetbased service sector but missed the fact that vast numbers of businesses across the U.S. are engaged in moving physical goods—in fact, 9.5% of the U.S. Gross Domestic Product is wrapped up in this process. Much of the $1.763 trillion of business inventories handled in 2005 depended on efficient logistics networks that included contract warehousing and third party services. No doubt, many of the Internet-based retailers are included in those statistics.

With logistics costs taking a sharp upward swing, more taxes at a state level could counter much of the benefit Goodlatte sees for the Internet economy. Suboptimizing a distribution network to avoid states with aggressive tax policies (which gain sanction for taxing interstate commerce from this bill) carries a cost that is every bit as real as the taxes themselves. Those costs will add to the inflationary pressures already at work on logistics networks. Rep. Goodlatte should review the direction fuel costs, driver and worker pay, insurance, interest rates, etc. have taken in recent months. And when the cost of delivering goods to the end customer increase, it gets passed to the consumer.

The glacial pace of government can insulate against rash acts, but it can also lull us into a false sense of security. Recent lobbying efforts mounted by the International Warehouse Logistics Association (IWLA) brought members to Capitol Hill where they learned that without a solid personal relationship with members of Congress, you may end up talking to what one member called "the 25-year-olds-who actually run the government." He was referring to congressional staffers who, he also observed, "have never had to meet a payroll and don't understand how business operates."

With 80 to 100 face-to-face meetings with congressional leaders and staffers, and all of the influence those sympathetic to the argument could exert, they still haven't budged Rep. Goodlatte. IWLA even invited other associations to hear the arguments and possibly take up the banner.

The bill is headed to the House floor and what is needed is real-world examples of how H.R. 1956 will harm your business and the economy if it remains in its present form. Once the bill becomes law, it will establish a base standard for how states can tax interstate commerce.

Consider any action you take today as an investment in a longer term relationship so that when you need to, you can bypass the handlers and present your case directly to the person who carries the House or Senate voting card.

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