Small Business Reading Room

Monday, May 17, 2004

The Black Hole of State Taxes.

Since it is Delaware State Franchise Tax time for LLCs and alternate entities, I thought it might be interesting to look at the work of the Multistate Tax Commission (MTC) in recent months. According to our friends at the MTC warned last week that H.R. 3220 (Business Activity Tax Simplification Act of 2003) would legalize controversial tax shelter schemes.

While most of our readers would consider this a good thing, lets consider why the MTC does not.

What the MTC considers a controversial tax shelter scheme that needs legalizing is actually perfectly legal already. The good free people of the State of Delaware have decided not to tax income from intangible assets a corporation earns from outside our state. Now it is none of Maryland's business that the people of Delaware have chosen to tax its corporations in this way. But Maryland and others cry foul because this feature of Delaware's tax code diminishes the tax revenue available to Maryland. Too bad.

Some laws were broken by the likes of MCI Worldcom. The States should focus on punishing the guilty instead of making a money grab for profits earned outside their borders.

The purpose of H.R. 3220 is to make Internet transactions simpler across the fifty states. I think we can agree that this would be a good thing too.

We will have more on State taxes and State budget financing in a future blog.



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