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?

 

Willis Commission Report 50th Anniversary Approaches - Multistate Tax Issues Continue

Many of you about the Willis Commission. And for many, it is a mystery - ancient history. And it sure is.  Oddly or unfortunately though, the state and multistate tax issues discussed in this 1,200+ page congressional report and its recommendations mostly read like it could have all been written today.

Volume 1 was released June 15, 1964 (see cover above) and Volume 4 was released September 2, 1965. Here is more, originally posted to Sales Tax Support.com.

In 1964 and 1965, the “Willis Commission” issued a four-volume, 1,200+ page report on multistate problems and possible solutions. The commission was named for its chair, Congressman Edwin Willis (D-LA). It was created as part of P.L. 86-272 (9/14/59), more famously known for providing a rule for when a business that sells tangible personal property will have income tax nexus in a state. In 1962, legislation extended the due date of the report and expanded it beyond income tax.

Much of this report reads like it could have been written today. For example, part of the conclusion reads: “It has been found that the present system of State taxation as it affects interstate commerce works badly for both business and the States.”

A few observations made in the report about sales and use tax follow:

·         At the time, only 38 states and about 2,300 local governments assessed sales tax.

·         Rates, definitions, exemptions and administrative procedures varied among states.

·         It was difficult to get information about the state and local tax base and rates (no Internet and apparently even the commercial tax services could not track it all down).

·         Evasion occurred as many cities had insufficient enforcement resources.

·         States wanted businesses to take a national view of their sales tax obligations, yet States had taken no responsibility for helping to create the type of system needed for “nationwide liabilities.”

·         Congress needed to step in to resolve the issues.

Recommendations for improvement included:

·         Many mail order companies sell unique items that don’t compete with local businesses so don’t bother trying to collect the tax from them. (I don’t think this sounds good today, but the dollars and number of remote sellers in the 1960s was much less than we have today.)

·         Have business customers handle sale and use tax on their own (direct payment approach). (This would be similar to a VAT system and would certainly take the burden off vendors of getting correct exemption certificates from business customers.)

·         Consider a permanent establishment approach to nexus. This “has the effect of requiring collection only in cases where sales are being made in circumstances very similar to those of local companies and where an apparent tax advantage would be most resented.”

·         Devise a uniform tax base with exemptions only possible for food or prescription drugs. If a state wants more, it can “grant refunds to purchasers.”

Since at least 1994 (two years after the Quill physical presence rule), some version of the Marketplace Fairness legislation has been introduced in Congress. Will a version ever be agreed to? Will any state take on Justice Kennedy’s statement in his 2015 concurring opinion in Direct Marketing Association v. Brohl, Executive Director, Colorado Dept. of Revenue (USSC 3/3/15)? He suggested it would be good to revisit Quill, noting it was “questionable even when decided.”

And, of course, the issues are more complex today due to there being more remote vendors, issues of collecting sales tax on services and digital items in some states, and figuring out cloud computing.

What do you think will be different by the 60th anniversary of the Willis Commission report (or perhaps sooner)? Do any of the 1965 suggestions sound good today? Please submit your comments below.