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Wednesday, September 2, 2015

50th Anniversary of Willis Commission Report

Today marks the 50th Anniversary of the issuance of the last volume of the 4-volume, 1,200+ page Willis Commission Report. The four volumes were issued in 1964-1965. The official name of the report and the commission that wrote it - the House Special Subcommittee on State Taxation of Interstate Commerce (Rep Willis chaired the commission). This is likely the most comprehensive study and report ever done on state and multistate issues covering income tax, sales and use tax, gross receipts tax, and capital stock tax.

The report was issued in response to a 1959 US Supreme Court decision (Northwestern States Portland Cement Co. v. Minnesota, and Stockham Valves and Fittings, Inc., 358 US 450 (1959)). Congress was concerned that this decision would lead states to go overboard in assessing income taxes on multistate businesses. So within seven months of the decision, Public Law 86-2782 was enacted (9/14/59).  It limited when states could impose income tax obligations on a business.  This legislation also called for a study on state income tax and solutions to improve how multistate income is taxed.  While PL 86-272 remains in effect today, it was intended to be temporary - the study was to help come up with a long-term remedy for state income tax.  I have more on that anniversary and related information - here.

The study was later expanded to cover more types of taxes.  The report is an interesting (and long) read.  I describe much of it as something that could be written today. The problems described in the 1960s are mostly still with us, only with more digital and more businesses. For example, consider this statement:

"It has been found that the present system of State taxation as it affects interstate commerce works badly for both business and the States. It has also been found that the major problems encountered are not those of any one of the taxes studied but rather are common to all of them. This is not surprising in that all of these problems reflect the pervasive conflict between the approach to the taxation of interstate companies as it appears in State and local law, and the practical difficulties of realistic compliance expectations and effective enforcement. Increasingly the States, reinforced by judicial sanction, have broadened the spread of tax obligations of multistate sellers. As the principle of taxation by the State of the market has been accepted, the law has prescribed substantially nationwide responsibility for more and more companies. The expanding spread of tax obligations has not, however, been accompanied by the development of an approach by the States which would allow these companies to take a national view of their tax obligations. The result is a pattern of State and local taxation which cannot be made to operate efficiently and equitably when applied to those companies whose activities bring them into contact with many States." [Vol. 4, page 1127]

Today's system of state taxation of interstate commerce also works badly for both businesses and states.  In fact, that is one reason for my blog and 21st century taxation website- to discuss ways to move our taxation systems into the 21st century and follow principles of good tax policy. As clear from reviewing the Willis Commission report, we still have a lot of 20th century problems.

What do you think?
 

2 comments:

Ken Lee said...

Hi Professor - I think one interesting thing to me is the parallels between the taxing systems analyzed and critiqued by the Willis Committee and the current discussions in multi-national taxation.

Annette Nellen said...

Yes. The key issues - how to tax Multistate income, continue. States try new approaches and it seems Congress is not interested in resolving the issues and states are unable to on their own.