BizSugar.com › Taxes › Small Businesses Protest Backdoor State "Activity" Taxes

A House Small Business Committee hearing was called this week to examine a trend that is alarming small businesses across the country. A growing number of states are imposing so-called "business activity" taxes on companies that have a connection, or "nexus," with the state. A nexus can exist, even though a business has no employees or physical presence in the state.

Before 2005, so-called business activity taxes were virtually unheard of. But as the economy has grown slower, more and more states are enacting such measures. About a dozen now impose business activity taxes; the most prominent include Chabot's home state of Ohio and such states as Washington, Michigan, New Jersey, Maine, California, Pennsylvania, and Florida. And the trend is likely to get worse.

According to a new study by the Center on Budget and Policy Priorities, a nonpartisan Washington, D.C.-based research group, at least 25 states are facing budget shortfalls in Fiscal 2009, which begins for most in July. Total figures are unavailable, but 20 of those states so far have reported a collective shortfall of $34 billion. Three more states expect budget shortfalls in Fiscal 2009. Unlike the federal government, the vast majority of states are required by law to enact a balanced budget, and many states are now facing the prospect of cutting services or raising taxes. That makes businesses, particularly small businesses, vulnerable to these levies.