Hearing Held on Effects of Business Activity Tax on Small Businesses
Traditionally, the states and the courts have accepted a historic principle that a business must have a physical presence in a state before that state could assess income-based and similar taxes on the business.
In 1992, the U.S. Supreme Court, however, ruled in Quill Corporation v. North Dakota that a state may not impose a use tax collection obligation on an out-of-state business unless that business has a 'substantial nexus' to the taxing state, but decline to comment on other taxes.
As a result some states have attempted to tax the income or gross receipts of companies merely with customers, but with no physical presence in their jurisdiction. The efforts by states have led to uncertainty as the taxes vary from state to state. The House Small Business Committee held a hearing last week to discuss the effects of this tax upon small companies.
Committee Chair Nydia Velazquez (D-NY) opened the hearing by stating, "We are seeing cases where entrepreneurs are charged a $400 BAT for less than $100 of total sales in a state. Not only does that have a chilling effect on small firms, it hurts the national economy."
She further noted, "Unlike large corporations, most small businesses operate on very tight margins. any additional expenses - particularly unexpected ones - can have a devastating impact on their solvency."
Velazquez concluded the hearing by stating, "When it comes to business activity taxes, the status quo is obviously not working. The success of entrepreneurs is predicated on their ability to plan. Ensuring clarity in the tax code, promotes the well-being of small businesses and that of our nation's economy."
All of the witnesses supported the Business Activity Tax Simplification Act and encouraged its passage.
All of the witnesses also clarified that they are not advocating for not paying taxes, but simply for fairness and clarity.
Lawmakers Promise to Fight Proposed Homeland Security Grant Cuts
President Bush's Fiscal Year 2009 (FY09) proposed budget includes a nearly 50% reduction in overall grant funding over the Fiscal Year 2008 (FY08) enacted levels for states, cities, and local first-responders. The request mirrors the Administration's FY08 request, $2.2 billion.
Congress eventually appropriated $4.1 billion in FY08. Democratic and Republican lawmakers have again said they are prepared to increase the grant funding.
"I don't understand how anyone would reasonably suggest that those needs are even close to being met... especially given the director of national intelligence's testimony just day ago that al Qaeda is improving its ability to attack with in the United States," stated House Homeland Security Appropriations Subcommittee Chairman David Price (D-NC).
Senate Homeland Security Committee Chairman Joseph Lieberman (I-CT) and Ranking Member Susan Collins (R-ME) were also critical of the Administration's request at a hearing last week. Colllins specifically cited first responders' inability to communicate with each other effectively as a costly problem still in need of fixing.
House Homeland Security Committee Chairman Bennie Thompson (D-MS) and Ranking Member Peter King (R-NY) were also critical of the Administration for the proposed cuts at a separate hearing last week.
"We have heard high rhetoric about supporting state and local governments, but then the president's budget short changes them by slashing the funding for the state homeland security grant program by 79%," stated Chairman Thompson.
Homeland Security Secretary Michael Chertoff defended the request as appropriate by calling it equal to the FY08 funding request, noting that the FY09 request is only lower when compared to the funding enacted by Congress.
Bills Moving On Diesel Retrofit Funding
Both the House and Senate are moving bills to allow the Environmental Protection Agency (EPA) to used funds from enforcement settlements for diesel retrofits.
Over the year, over $49 million has been provided though settlements with Clean Air Act violators for installing pollution control equipment on school buses and other diesel equipment.
Because Congress has recently begun funding a new Federally authorized program to help pay for these kinds of retrofits, agency lawyers have raised questions about their ability to continue to accept funds contributed voluntarily from violators.
Bills have been introduced in both the House and Senate to clarify that EPA can continue to provide such funding and that it is not an illegal "augmentation" of Federal funding.
On February 6th, the Senate Committee on Environment and Public Works unanimously approved legislation addressing this issue.
On February 13th, the House Energy and Air Quality Subcommittee of the Energy and Commerce Committee approved an identical bill.
Hearing Held on Proposed Rule on FMLA
The Senate Health, Education, Labor and Pensions Committee held a hearing last week on the Notice of Proposed Rulemaking on the Family Medical Leave Act (FMLA) as issued by the Department of Labor earlier in the week.
Department of Labor Assistant Secretary Victoria Lipnic testified that since the enactment of FMLA, hundreds of reported Federal cases have addressed the Act or the Department's implementing regulations. She added that in many cases, decision have created uncertainty for employees and employers, particularly those with multi-state operations. She continued that the Department expects that the proposed rule issued earlier this week, if finalized would bring clarity to those issues and reduce uncertainty. She concluded her remarks by noting that, in general, FMLA works well in the majority of cases and has succeeded in allowing working men and women to better balance family needs and work responsibilities. She recognized that despite their efforts, however, it has not worked well in every case.
Senate Health, Education, Labor and Pensions Committee Chairman Ted Kennedy (D-MA) stated that there is no basis for the changes proposed by the Administration. he noted that the only real problem with the Act is that the protections don't go far enough. he added that one out of three workers is not eligible and the current law only guarantees unpaid leave - recognizing that since many people cannot afford to be without a paycheck, many don't take the leave when they need it.
He further stated that leave for workers with serious health conditions should be paid, as proposed by Senator Dodd in his Family Leave Insurance Act. He also suggested the need for paid sick leave.
There is a 60-day comment period on the proposed rule.
DOL Proposes FMLA Changes
On February 11 the Department of Labor issued a Notice of Proposed Rulemaking to change some provisions of the Family and Medical Leave Act based on court decisions, recent statutory changes, and review of the Act after 15 years of implementation.
As you know, FMLA requires that employers of 50 or more employees within 75 miles of a work site allow eligible employees to take up to 12 weeks of unpaid leave during a 12 month period for birth or adoption, to care for family members, or for serious illness. An eligible employee is one who has been employed for at least 12 months and 1250 hours.
The most significant change is a result of legislation recently signed by the President to establish a new section on Military Family Leave. Effective immediately, employers must allow eligible employees to take 26 weeks of FMLA in a 12-moth period (more than twice the current amount) to care for an injured or seriously ill service member. The law also requires DOL to establish regulations (as part of this NPRM) regarding a new qualifying event that allows an employee to use FMLA for a 'military exigency' involving a family member. For example, the spouse of a member of the National Guard who is about to be deployed may take leave to arrange for child care during his/her absence, or a parent could take leave to see his/her child leave for or arrive from duty. Other relevant proposed changes include:
Clarification of the 12 months' minimum employment: The NPRM clarifies that while the 12 months need not be consecutive, employment prior to a 5-year separation from the employer does not count toward the eligibility. Exceptions to the 5-year rule are if the separation was due to a military obligation, or if it was due to an approved leave of absence for child-rearing or education.
Definition of "serious health condition": Though the Department has received many complaints from all stakeholders, including physicians, about what constitutes "serious health condition" under the rule, they are not proposing to change that part of the regulation. FMLA will continue to cover an absence resulting from an illness of more than three calendar days that was treated by a health care provider on at least on occasion with a regimen of continuing treatment (e.g. a prescription).
Clarification of "needed to care for": FMLA allows employees to take leave in order to care for a family member with a serious illness. Many employers have asked that employees document that they are the only person available to provide that care. DOL declined to make that a condition, and in fact, clarifies in the NPRM that the employee need not be the only caretaker in order to be eligible.
Substitution of paid leave for FMLA: The NPRM further clarifies that employees may substitute (i.e. run concurrently) accrued paid leave for unpaid FMLA leave, but in doing so, they must meet all employer conditions for the paid leave they intend to use. For example, if paid leave may be taken only in full day increments, an employee may not use paid leave as a substitute for less than a full day of FMLA.
Bonus payments: The NPRM changes the language regarding "equivalent pay" that a returning employee is entitled to by clarifying that certain bonus payments cased on the achievement of a specified goal need not be paid to FMLA employees if the employee missed the goal as a result of FMLA leave. for example, an employee who was absent on FMLA leave during the bonus period could be excluded from a perfect attendance bonus.
You can download the entire NPRM at http://a257.g.akamaitech.net/7/257/2422/01jan20081800/edocket.access.gpo/gov/2008/E8-2062.htm. The deadline for comments is April 11.
President Signs Economics Stimulus Package
On February 13, 2008 President Bush signed the economic stimulus package approved by Congress into law. After much negotiation, the final bill includes:
Payments to Individuals
Workers who earned at least $3,000 in qualifying income during 2007, but paid little or no income tax ,would qualify for checks of $300 for individuals or $600 for couples filing joint tax returns. Qualifying income includes wages, Social Security benefits and pyaments to disabled veterans of their survivors.
Workers and others who paid income taxes last year on wages or investment income would recieve checks of up to $600 for individuals, $1,200 for couples. Payments would phase out for individuals with more than $75,000 in adjusted gross annual income and couples with more than $150,000. Childless couples with incomes of more than $87,000 or $174,000 for couples would get nothing.
Anyone qualifying for a check would receive an additional $300 for each dependent child under the age of 17
Business Tax Breaks
Companies could write off an additional 50% of new investment expenditures in 2008 for items subject under current law to depreciation over 20 years of less. The remaining value of the investments would be depreciated over the life of the item.
Small businesses would be allowed to write off the entire cost of new investment expenditures up to $250,000. That is almost twice the current expensing limit, and it would apply to companies with overall investments of less than $800,000 in 2008.
The Federal Housing Administration's mortgage loan limit would be temporarily increased until December 31 from $362,790 to either 125% of the median home price in the local market or $729,750, whichever is less.
Conforming loan limits for Fannie Mae and Freddie Mac would be temporarily increased until December 31 from $417,000 to either 125% of the median home price in the local market or $729,750, whichever is less.
Checks are expected to be dispense in May or June of 2008.