2009-2010 Policies for the Jurisdiction of the Budgets and Revenue Committee
Federal Grants and Programs
The National Conference of State Legislatures (NCSL) urges the federal government to maintain its existing financial commitments to state-federal partnership programs. Too often, the federal government has responded to budget pressures by simply shifting costs to the states. The federal government should not attempt to accomplish national goals through unfunded mandates on state and local governments.
NCSL believes that the federal government must:
- Maintain its financial commitment to federal programs that rely on state participation for implementation;
- Maintain its matching rate for federal programs for which it shares responsibility with state governments. Any reduction in the matching rate for shared programs must have a corresponding reduction in the regulatory and administrative burdens imposed on states;
- Reject any plan to increase federal domestic programs at the expense of funding for state administration or state sharing ratios;
- Streamline the waiver process that states are subject to concerning education, the environment, human services, Medicaid and other health programs;
- Provide stable and predictable funding for state-federal partnership programs;
- Fully fund the long-term maintenance as well as the short-term startup costs of federal mandates;
- Avoid the unsound practice of delaying the release of funds for state-federal programs within a fiscal year;
- Avoid capping federal entitlement spending while retaining the legal entitlement obligation of the states;
- Avoid the long-term commitment of funds based on short-term revenue projections; and
- Limit the federal oversight role of state grant funds to audit and evaluation.
NCSL believes the devolution of certain federal responsibilities to the states should constitute a serious attempt at restoring balance to the state-federal partnership. To that end, the NCSL has developed a set of principles to be considered with regard to any new block grant the federal government creates. Because state legislatures are the bodies that are most involved in the decision-making process with regard to program delivery in the states, we urge Congress and the administration to adhere to the following principles when constructing any new block grant plan or revising any existing block grant program:
- Funding levels for block grants must be adequate to finance mandated programs and to respond to economic changes.
- In the event that Congress imposes "maintenance of current level of services" mandates on funds appropriated for any federal grant program, Congress should provide the funds necessary to maintain and support the current levels of services existing at the time of such mandates. State "maintenance of effort" (MOE) clauses are inappropriate for program consolidations. Requiring states to spend a fixed amount while implementing decreases in federal funding for block grants is equivalent to an unfunded mandate.
- The consolidation of categorical programs into a single funding stream, should not be accompanied by a limitation in the types of services provided or constitute new mandatory categories of services.
- Language should be included in any block grant legislation that allows federal block grant funds to be distributed or expended "according to state law." Federal law must allow each state to choose the manner of appropriation of federal block grants. States should be authorized to determine the branch of state government that is responsible for carrying out public participation requirements.
- Maximum flexibility in terms of program implementation and administration should be maintained.
- Technical assistance to states by federal agencies during transition to any block grant should be continued.
- State reporting requirements should not be burdensome or require the use of funds that would otherwise be spent on program delivery.
- The Federal government should not create new entities to oversee the implementation of any block grants to the states.
- It is critical that federal agencies and their administrators rely on the single audits prepared by the states. The federal government should pay the full costs for performing these audits.
Federal Mandate Relief
The growth of federal mandates and other costs that the federal government imposes on states and localities is one of the most serious fiscal issues confronting state and local government officials. NCSL has worked diligently over the past quarter century to restore a balance to the intergovernmental fiscal partnership and raise the awareness of the problem of unfunded and underfunded federal mandates. NCSL applauds the success of the Unfunded Mandates Reform Act of 1995 (UMRA; P.L. 104-4) in bringing attention to the fiscal effects of federal legislation on state and local governments, improving federal accountability and enhancing consultation. However, unfunded and underfunded federal mandates continue to pose an undue burden on state and local governments. NCSL calls upon the federal government to reassess the Unfunded Mandate Reform Act and to broaden its scope and increase its effectiveness.
The manner in which the federal government imposes costly unfunded mandates on state and local governments is multi-faceted, including:
- direct federal orders without sufficient funding to pay for their implementation,
- burdensome conditions on grant assistance;
- cross sanctions and redirection penalties that imperil grant funding in order to regulate and preempt the states actions in both related and unrelated programmatic areas;
- amendments to the tax code that impose direct compliance costs on states or restrict state revenues;
- overly prescriptive regulatory procedures that move beyond the scope of congressional intent;
- incomplete and vague definitions which cause ambiguity; and
- perceived or actual intrusion on state sovereignty.
These actions have resulted in substantial costs to state and local governments, and collectively, have eroded state legislators' control over their own states' budgets. Continued pressure for mandatory federal spending and restrictions on the growth of discretionary spending promote a tendency to seek the accomplishment of national goals through federal mandates on state and local governments.
Therefore, NCSL advocated passage of the bipartisan Unfunded Mandate Reform Act as a first step in eliminating the practice of unfunded federal mandates. UMRA has raised awareness of the problem of unfunded mandates, improved federal accountability, and enhanced consultation between the federal government and states and localities. NCSL also applauded passage of the State Flexibility Clarification Act of 1999 (P.L. 106-141) that expands the requirement for cost estimates and mandate statements for legislation that caps federal funding for large entitlement grant programs without providing offsetting state flexibility. NCSL is encouraged that many federal lawmakers have recognized the difficulties posed by unfunded and underfunded federal mandates and are pursuing means to require that the federal government meet its commitments to the states.
NCSL continues to demand sufficient federal funding for state-federal partnership programs through the mechanism of mandatory spending. If the federal government is unwilling to provide such funding as an entitlement to the states, states should be absolved of their legal responsibility to provide services to entitled individuals and fulfill other federal mandates. A promising approach is the "trigger" mechanism that delays the testing requirement contained in the Elementary and Secondary Reauthorization Act of 2001 (Public Law 107-110) for any year in which the federal government does not meet its stated funding commitment.
UMRA fosters a more balanced state-federal partnership by, among other provisions:
- Requiring the Congressional Budget Office to perform intergovernmental cost estimates on federal legislation and instituting a point of order against legislation containing significant intergovernmental federal mandates without corresponding funds,
- Establishing procedures for executive branch agencies in the development of federal regulations, and
- Encouraging consultation between the Congress, the Administration and state and local government officials throughout the federal legislative and regulatory development process.
Title I of UMRA-requiring the Congress to perform cost estimates and providing for a point of order-has been successful in reducing the number of unfunded mandates passed by the Congress. Further, the unfunded mandate point of order and other procedural mechanisms contained in UMRA have proven to be effective without impeding the legislative process. Many unfunded mandates, however, are not subject to these procedural tools because they do not meet the strict definition under UMRA. NCSL appreciates that the Congressional Budget Office State and Local Government Cost Estimates Unit endeavors, within its resources, to provide information on the costs of mandates outside of this strict definition. NCSL encourages the Joint Committee on Taxation, which is responsible for performing cost estimates of tax legislation, to provide similar additional information. Title II-requiring administrative agencies to consult with state governments and provide for regulatory accountability and reform-has been only marginally effective in reducing costly and administratively cumbersome rules and regulations on states and localities. Further, consultation with state and local governments in the construction of these rules is haphazard.
The experience of state and local governments with the Unfunded Mandate Reform Act warrants further review. There remain gaps in the fiscal protections provided to state and local governments. The law must be refined to provide broader protections to states and localities against the imposition of costly and administratively cumbersome mandates. Specifically, NCSL encourages the federal government to enact reforms that should include:
- Expansion of the definition of an unfunded mandate to include all open-ended entitlements, such as Medicaid, child support and Title 4E (foster care and adoption assistance) and proposals that would put a cap on or enforce a ceiling on the cost of federal participation in any entitlement or mandatory spending program. Further, any proposal that places a cap or enforces a ceiling must be accompanied by statutory offsets that reduce state spending, administrative duties or both.
- Review of the existing exclusions under Section 4 of UMRA. Excluding legislation from the requirements of UMRA precludes an official accounting of the costs imposed under such legislation.
- Expansion of the definition of mandates to include new conditions of federal funding for existing federal grants and programs, including costs not previously identified, including mandated results.
- Expansion of the definition of mandates to include proposals that would reduce state revenues, especially when changes to the federal tax code are retroactive or otherwise provide states with little or no opportunity to prospectively address the impact of a change in federal law on state revenues.
- Expansion of the definition of mandates to include those that fail to exceed the statutory threshold only because they do not affect all states.
- Expansion of legislation subject to UMRA review.
- Revision of the definitions of mandates, direct costs or other provisions of the law to capture and more accurately reflect the true costs to state governments of particular federal actions.
- Requiring that mandate statements accompany appropriations bills.
- Enactment of legislation which would require federal reimbursement, as long as the mandate exists, to state and local governments for costs imposed on them by any new federal mandates.
- Improvement of Title II, including enhanced requirements for federal agencies to consult with state and local governments and the creation of an office within the Office of Management and Budget that is analogous to the State and Local Government Cost Estimates Unit at the Congressional Budget Office.
- Restrictions regarding the preemption of state laws.
- Repeal or modification of certain existing mandates as recommended by other NCSL resolutions.
NCSL will continue to monitor the growth of new federal mandates and call for the continued review of existing mandates for possible repeal or modification.
August 2011
Financial Policies that Reward Work: Earned Income Tax Credit and Individual Development Accounts (Joint policy withh Human Services and Welfare Committee)
The National Conference of State Legislatures (NCSL) supports financial mechanisms that reward work. We encourage the federal government to enact financial policies that reward work. Two current tools are the Earned Income Tax Credit (EITC) and Individual Development Accounts (IDAs). These valuable programs complement each other.
Earned Income Tax Credit (EITC)
Congress created the Earned Income Tax Credit (EITC) in 1974. In 1986, the Tax Reform Act expanded the value of the EITC and indexed the credit for inflation. In 1993, Congress further increased the value of the credit, adjusting it for family size and expanding coverage to include very poor childless workers. An increasing number of states have enacted their own EITC as an incentive for low-income families to work and earn income. Many states have enacted their own refundable credit or non-refundable credit. NCSL supports the federal EITC as a means of reducing poverty among working poor families, and ensuring that the benefits of work surpass the benefits of public assistance.
Increasing public awareness is essential to the success of this program. Too few working poor individuals know how to apply and even fewer employers are aware of the program and the ability employees have to receive the credit through their paycheck. The federal government should provide technical assistance to the public and private sector as part of the effort to assist eligible employees. Employers need to know that the EITC does not add costs to their businesses and helps them retain employees. NCSL strongly urges the federal government to work with states as partners to develop new and creative methods to inform eligible families about the following:
- They must file a federal return even if they pay no federal taxes in order to receive the refundable credit;
- They can use the toll-free IRS hotline;
- They can receive free tax preparation assistance through the VITA (Volunteer Income Tax Assistance) program; and
- They can file a W5 form with their employers to receive their credit benefit throughout the year.
Because an expanded EITC supplements the wages of low-income working families without decreasing work incentives, NCSL supports federal efforts to increase the value of the credit, adjust it for family size, and eliminate the marriage penalty. Research has shown that the EITC increased labor force participation and employment rates among low-skilled single mothers. NCSL supports expanding the EITC to single workers, especially noncustodial parents, to have the same impact on low-skilled fathers. However, NCSL objects to increases to the credit that result in cost shifts to the states. NCSL urges Congress to continue to use the EITC as part of federal efforts to reform welfare. NCSL supports continuation of federal practice that allows states to use TANF and MOE funds for the state EITC. Such support should not count as "assistance" under the welfare law nor should federal data reporting for "assistance" programs apply. Such a requirement for a state EITC program is overly burdensome. Further, NCSL encourages the Administration to provide states the maximum flexibility to administer their own EITC programs. NCSL urges the federal government to simplify the application for the federal EITC and reduce the paperwork burden on filers. NCSL believes that such an effort will reduce errors.
Congress and the administration have implemented several error-reducing measures supported by NCSL:
- IRS access to the Federal Child Support Case Registry which will allow the IRS to reduce filing errors on the part of non-custodial parents who are ineligible to receive the EITC;
- Linking of Social Security numbers of parents to new numbers established for children in the Social Security database, enabling the IRS to verify parentage and thereby eligibility for the credit; and
- Providing additional funds to the IRS, which allow the IRS to substantially intensify efforts to curb EITC errors through screening and other means.
NCSL supports continued efforts to reduce errors but opposes proposals that would limit eligibility and reduce benefits. Such proposals would hamper state welfare reform efforts. Further, NCSL opposes efforts to reduce errors that would be overly burdensome to states. NCSL also supports bipartisan efforts to increase the availability of the child tax credit to low-income families by revising the income threshold.
Individual Development Account (IDA)
Individual development accounts (IDAs) are another tool to promote financial self-sufficiency. At least half of the states have enacted state IDA programs to encourage the accumulation of assets by the working poor through matched savings accounts. NCSL supports federal efforts to provide incentives for the creation of IDAs as a complement to state efforts to reform welfare and to support working families' efforts to move out of poverty. NCSL urges the federal government to continue to allow states to have the flexibility to use TANF funds for IDA programs. Further, NCSL supports changes in the federal tax code that would expand opportunities for IDAs including a tax credit for financial institutions that participate with matching funds and for private entities that invest in nonprofits that administer IDAs. NCSL also urges the U.S. Department of Health and Human Services to examine and eliminate barriers in the TANF program, including those associated with the Cash Management Improvement Act, to simply administration of IDAs.
August 2010
Fiscal Federalism
State and local governments are partners with the federal government in the delivery of vital services to the nation's citizens. Consequently, state and local governments have as much at stake in the method of financing the public budget as does the federal government. When changes in federal tax policy are considered, Congress and the administration should discuss and account for the effect of federal changes on state and local financing and revenue bases.
Principles for Fundamental Federal Tax Reform
The National Conference of State Legislatures (NCSL) advances the following set of principles to guide fundamental federal tax reform efforts because of the important implications of reform on states. Congress and the Administration must recognize that:
- Federal and state tax systems are inextricably linked;
- Any federal reform will have serious fiscal and administrative ramifications on the states; and
- State legislators must be involved from the beginning of the federal reform process and throughout the process.
Therefore, as elected officials responsible for providing public services, NCSL urges Congress and the administration to work with state legislatures to ensure that any changes to the federal tax code:
General
- Preserve the fiscal viability and sovereignty of state governments;
- Encourage work, savings, equity and simplicity;
- Avoid further intrusion upon the state excise tax base;
- Continue to rely on an income tax as its primary source of revenue.
- Preserve states’ ability to tax certain revenue sources; and
- Preserve the ability of state and local government to adopt fair and effective tax systems. This includes authorizing states with sales and use taxes to require interstate sellers to collect and remit those taxes and preserving the state and local income tax, sales tax and property tax deductions for federal income tax purposes.
Transition
- Provide states with adequate transition time to implement and respond to new tax systems, preferably three to five years.
- Avoid the negative state impact of retroactive application of tax changes.
- Provide technical expertise to states to ease any transition of administrative responsibilities to the states resulting from federal tax reform.
- Provide adequate federal administrative funds for any federal tax reform that involves modified or increased collection responsibilities for the states.
- Ensure that federal tax changes are made in a manner that preserves federal data collection used by the states.
Do No Harm
- Provide flexibility and strengthen states’ ability to finance and administer programs for which they are traditionally responsible or have gained through devolution.
- Recognize that federal tax reductions should not compromise existing and future commitments to state-federal partnership programs.
- Avoid a national sales tax in any form, including a federal consumption based tax, which would seriously erode the sales tax base, a traditional revenue source for state governments.
Tax-Exempt Financing/Bonds
- Preserve the flexibility of state and local government to use tax-exempt financing, including the use of public-private partnerships.
- Maintain the tax-exempt status of state and local government bonds and lift existing restrictions on state and local government use of tax-exempt bonds.
- Avoid provisions that weaken the fiscal integrity of state and local governments. This includes: the arbitrage rebate provisions, which essentially are a one-hundred percent tax on the interest income of state and local governments; the alternative minimum tax, which now taxes interest from otherwise tax-exempt bonds; volume caps, which have unduly restricted the use of bonds for projects that have increasingly become governmental responsibilities; and, restrictions on advance refunding which increases the cost of government.
- Support the Mortgage Revenue Bond (MRB) program and the low-income housing tax credit.
- Base MRB price limits on current state or area median income, rather than out-dated home price statistics.
- Repeal the MRB Ten-Year Rule, which requires states to use MRB mortgage payments to retire MRBs that are outstanding more than 10 years rather than fund new mortgages for low-income first-time home buyers.
- Provide states flexibility in developing housing credit properties in low income areas where they cannot be developed under current law.
Enforcement
- Increase enforcement efforts of the federal income tax laws so individual and business taxpayers are not bearing the burden of those who fail to pay owed taxes.
- Continue to take into account states’ reliance on federal tax rates and federal collection efforts.
Other
- Prohibit further preemption of state courts by refusing to give federal courts jurisdiction to establish the valuation of property for state and local tax purposes or by refusing to give selected classes of state and local taxpayers procedural and substantive privileges unavailable to most taxpayers.
NCSL also encourages Congress and the administration to:
Non-Discrimination
- Review the Railroad Revitalization and Regulatory Reform Act (4-R Act) to determine if the courts have expanded the 4-R Act beyond the original intent of Congress.
- Reject federal legislation that would extend to other industries 4-R type benefits.
In summary, state legislators are concerned about specific aspects of fundamental federal tax reform. NCSL calls upon Congress and the Administration to address each of the issues in any fundamental tax reform proposal in collaboration with state and local government.
August 2010
Free Online Tax Preparation and Electronic Filing
WHEREAS, a program that is important to the citizens of the United States is in jeopardy as the result of decisions being proposed in the United States Congress;
WHEREAS, twenty of our states that have an individual income tax have implemented an innovative solution to meet the needs of the low-income, disadvantaged, underserved and working poor taxpayers many of whom are eligible for the Earned Income Tax Credit and Child Tax Credit;
WHEREAS, this innovative solution, called the State Free File Alliance, has been developed over the last decade where public need, private corporate citizenship and community based organizations have worked together in an era of fiscal limits and new challenges;
WHEREAS, the State Free File online tax program is based upon a formal Federal agreement reached between the Internal Revenue Service and the American software industry, whereby working poor and other lower income and underserved families and individuals are able to obtain free electronic tax preparation and electronic filing for their federal and state tax returns through government revenue service websites;
WHEREAS, the program saves State budgets the very high cost of creating duplicative online government tax preparation and filing services. Twenty states have each decided to create a Free File Alliance public-private partnership based on the Federal IRS agreement, creating Free File programs in their individual states. This has collectively saved state governments billions of dollars in expenditures, while providing free services to those who need them;
WHEREAS, the Internal Revenue Service negotiated the terms of the national Free File Agreement with the software providers, this agreement is the common basis for all the Free File programs in the Free File states;
WHEREAS, that same Internal Revenue Service program has over the five years of the program adopted significant management rigor and operational safeguards to improve the Free File program and protect consumer safety, ensuring that Free File is free of sales, marketing or advertising of any products and services other than a tax return, and affirming that no products other than tax returns should be offered or provided through this program; and that these program management reforms should be commended, supported and rigorously implemented, and;
WHEREAS, the United States Congress is considering whether to adopt legislation to direct the Internal Revenue Service to terminate the national Free File program and replace it with a government-provided direct tax preparation and filing system at public expense,
BE IT THEREFORE RESOLVED, that because the public and the States must rely upon the Internal Revenue Service that it continues its rigorous management and governance of the national Free File program, so that the program benefits from continuous process and program improvements and reforms over time;
BE IT FURTHER RESOLVED, that while participating companies should continue to provide free Federal tax returns under the national Free File program, the Internal Revenue Service should be directed to encourage those companies to also all voluntarily provide Free State returns for eligible taxpayers;
BE IT FURTHER RESOLVED, that the National Conference of State Legislatures (NCSL) recommends that the United States Congress support the recommendations of the U.S Treasury Inspector General to expand the public awareness of the availability of the Free File Program for eligible taxpayers;
BE IT FURTHER RESOLVED, that NCSL strongly recommends that the United States Congress take no action that would cause the Free File program to be terminated or replaced with a government-provided online tax preparation and filing system, and consequently end the availability of the Free File program to the several States, and thus impose without funding the need to replace such free services with government-provided services at the State level as well, requiring States to develop, sustain and deploy their own state government-furnished tax preparation products, services and systems at substantial taxpayer expense;
BE IT FURTHER RESOLVED, that copies of this resolution be transmitted to the President of the United States; each member of the United States Senate and House of Representatives; the United States Secretary of the Treasury; the Commissioner of Internal Revenue; and the Governors of the 20 Free File states; and;
BE IT FURTHER RESOLVED, that NCSL urges the United States Congress and the President of the United States to take immediate action in furtherance of the public good advocated in this resolution.
August 2010
Maintaining a Balanced Federal Budget
The National Conference of State Legislatures (NCSL) was one of the first national organizations to call on Congress and the President of the United States to eliminate the federal budget deficit. NCSL applauded the return of the federal budget to balance during the late 1990's and is dismayed at the subsequent return to deficit spending.
NCSL calls on Congress and the President of the United States to continue their commitment to a balanced federal budget. There is nothing less at stake than: our very viability as a nation; our fiscal stability; our competitiveness with the rest of the world; our ability to invest for the country's future; and, our capacity to devote resources to such pressing intergovernmental problems as health care, education, infrastructure, the environment and homeland security. At the same time, we insist that the interests of state governments be recognized and protected in budget plans the Congress and the President adopt. We urge, therefore, that state legislators be directly involved in all discussions implementing agreements to maintain a balanced federal budget.
State governments, as partners in the federal system, have an incalculable stake in how the federal government balances its budget. Too often, the federal government has responded to its budget problems by simply shifting costs to the states, limiting state flexibility and intruding on state revenue systems. These practices stifle the creativity and responsiveness of state and local governments, exacerbate fiscal pressures, and undermine devolution, further eroding the confidence of the American public in government at all levels. NCSL urges the federal government to refrain from such approaches in pursuing any tax or spending changes necessary to balance the federal budget.
NCSL is concerned that excessive spending increases or tax cuts, given the need for continued fiscal discipline, may threaten funding for existing and future intergovernmental programs. NCSL urges the federal government to keep its existing commitments to state-federal partnership programs and, moreover, to consider the funding necessary to maintain these commitments in the future. Should programmatic cuts be required, all federal spending programs, including defense, entitlements, domestic discretionary, and international, should be scrutinized for savings. The federal government should not disproportionately cut domestic discretionary programs. The federal government should avoid establishing artificial firewalls dividing defense and domestic discretionary spending. Furthermore, Congress should respect the fiscal integrity of trust funds and not use those revenues for programs or tax reduction other than those for which the money was collected. Also the federal government should compensate the states for significant unfunded and underfunded federal mandates.
States rely on short-term projections, often crafting tax and spending policy on the basis of year-by-year projections. NCSL is concerned that the practice of making long-term projections, in excess of a few years, may prove unsound and may exacerbate the shifting of responsibility for the state-federal partnership to the states.
To ensure the integrity of state fiscal systems and to provide states flexibility to respond to the needs of our shared constituents, NCSL believes that any federal budget plan should at a minimum adhere to the following:
- A balanced budget must be achieved and maintained except in times of extreme national emergency. When unbalanced, there should be an action plan with a timetable to return to a balanced budget.
- There should be a significant component of the budget, and of any projected surplus, that is allocated to a fiscally responsible plan for reducing the national debt. The federal government ought to incur debt only for fiscally sound purposes, such as capital planning, not for the ongoing maintenance of existing spending or tax policy. Responsible debt reduction in times of federal surplus will provide more flexibility in the future for addressing intergovernmental and other priorities.
- The federal government should avoid the use of one-time savings measures, which temporarily ameliorate a deficit or provide a false justification for long-term commitments in tax or spending policy. To the extent that the federal government pursues any new spending programs or long-term commitments to tax reduction, it should develop a mechanism to fully fund such obligation and should cease reliance on mechanisms, which underestimate the true costs of these commitments and avoid sound fiscal planning.
- The federal government should not attempt to accomplish national goals through unfunded mandates on state and local governments. A cost estimate indicating the likely cost to be imposed on state and local governments should accompany any legislative proposals that contain new mandates on state and local governments, including those contained in reconciliation and appropriation bills.
August 2010
NCSL Supports and Urges Enactment of the Unfunded Mandates Information and Transparency Act of 2009 (H.R.2255)
WHEREAS, the Unfunded Mandates Reform Act (UMRA) of 1995 was enacted "to curb the practice of imposing unfunded federal mandates on states and local governments;"
WHEREAS, UMRA has not achieved its full and intended purpose and unfunded and underfunded mandates continue to pose an undue burden--$125 billion from FY 2004 to FY 2008-- on state and local governments;
WHEREAS, state fiscal situations are growing increasingly dire, thus requiring the need for the federal government to enhance transparency and provide accurate cost estimates for states; and
WHEREAS, the Unfunded Mandates Information and Transparency Act of 2009, as introduced by Representatives Virginia Foxx and Henry Cuellar would build upon UMRA's original legislative intent by providing more information on the cost of federal legislation and regulations without creating additional obstacles to the legislative process;
NOW, THEREFORE BE IT RESOLVED THAT, NCSL urges members of Congress to support the Unfunded Mandates Information and Transparency Act of 2009 (H.R. 2255).
Expires August 2010
NCSL Supports and Urges Enactment of Federal Legislation That Grants States Sales Tax Collection Authority (Action Resolution)
WHEREAS, the 1967 Bellas Hess and the 1992 Quill Supreme Court decisions denied states the authority to require the collection of sales and use taxes by out-of-state sellers that have no physical presence in the taxing state; and
WHEREAS, the combined weight of the inability to collect sales and use taxes due on remote sales through traditional carriers and the tax erosion from electronic commerce threatens the future viability of the sales tax as a stable revenue source for state and local governments; and
WHEREAS, the Streamlined Sales and Use Tax Agreement substantially simplifies state and local sales tax systems, removes burdens to interstate commerce, protects state sovereignty; and justifies overturning the Bellas Hess and Quill decisions; and
WHEREAS, on October 1, 2005, as a result of at least 10 states representing at least 20 percent of the population having fully complied with the Agreement, the streamlined sales tax system became operational and effective; and
WHEREAS, as of July 1, 2009, twenty-three states were certified as being compliant with the Streamlined Sales and Use Tax Agreement; and
WHEREAS, the Streamlined Sales and Use Tax Agreement includes over 1,100 volunteer sellers and now accounts for over $360 million in new revenues for states;
NOW, THEREFORE BE IT RESOLVED THAT, the National Conference of State Legislatures supports federal legislation that grants states that comply with the Agreement the authority to require all sellers, regardless of nexus, not meeting the small business exemption to collect those states’ sales and use taxes; and
BE IT FURTHER RESOLVED THAT, NCSL calls upon the members of Congress to join as co-sponsors of the federal legislation that grants states collection authority and specifically requests that the members of the congressional delegations from Arkansas, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming honor the decisions made by their state legislatures and governor by supporting and sponsoring this legislation; and
BE IT FURTHER RESOLVED THAT, the National Conference of State Legislatures calls upon the Congress to move swiftly to consider and approve federal legislation that grants states collection authority ; and
BE IT FURTHER RESOLVED THAT, the National Conference of State Legislatures urges the President to sign federal legislation that grants states collection authority into law, upon its passage by the Congress; and
BE IT FURTHER RESOLVED THAT, a copy of this resolution be sent to the President of the United States and to all the members of Congress.
August 2010
Nexus in the New Economy: Ensuring a Level Playing Field for All Commerce
The 1967 National Bellas Hess Supreme Court decision denied states the authority to require the collection of sales and use taxes by out-of-state mail-order firms that have no physical presence in the taxing state, even though these remote vendors solicit and obtain significant sales there using the mail or common carriers.
In a decision (8-1) rendered by the U.S. Supreme Court in Quill Corp. v. North Dakota, U.S.S.C.Doc.No. 91-194, the Court confirmed the Commerce Clause portion of its decision in National Bellas Hess, Inc. v. Dept. of Revenue, 386 U.S. 753 (1967). The Court held that a mail-order company must have nexus with a state before incurring sales and use tax collection responsibility. By clarifying that the issue is purely one of Commerce Clause implications, rather than Due Process, the Court removed the barrier that prevents Congress from intervening. The majority opinion concludes by determining that Congress is the appropriate body to resolve the issue.
In 1994, the now defunct federal Advisory Commission on Intergovernmental Relations estimated that states lost about $ 3.3 billion per year in uncollected use taxes on about $58 billion in remote sales. In 1994, remote sellers primarily conducted businesses by mail and other traditional common carriers. While states requested Congressional assistance to overturn the Bellas Hess and Quill decisions, Congress lacked the political will to close this loophole in the state sales and use tax systems. Adding to the Congressional indecision was a burdensome and complex system of sales and use tax collection laws and regulations which differed from state to state.
Cost of Collection
The sales tax is usually imposed on the customer, not the seller; states that impose the tax on the seller explicitly allow the tax to be passed through to the customer. Currently, sellers determine the sales tax to be collected, collect the tax and remit it to the state (in four states, Alabama, Arizona, Colorado and Louisiana, sellers also must remit the local portion of the sales tax directly to the local government). The seller also is liable for any mistakes that might occur due to misinformation from the buyer or even the state. This means that the seller is liable for any uncollected sales tax plus interest and penalties.
A recent national survey commissioned by the Joint Cost of Collection Study, a public / private sector group, and conducted by PricewaterhouseCoopers LLP, has shown that in fiscal year 2003 the total cost to sellers to collect state and local sales taxes was $6.8 billion. This amount was calculated after subtractions for state vendor discounts and retailer float on the sales tax revenues. The sponsoring organizations are: National Conference of State Legislatures; National Governors Association; Multistate Tax Commission; Federation of Tax Administration; Government Finance Officers Association; National Retail Federation; and, Council on State Taxation.
The study showed that for fiscal year 2003, for retailers selling between $150,000 and $1 million, the average cost was 13.47 percent of the sales taxes collected or approximately $2,386; for mid-size retailer with between $1 million and $10 million in sales, the average cost was 5.2 percent or approximately $5,279; and for the larger retailers, those with over $10 million in sales, the average cost of collection was 2.17 percent or approximately $18,233. It is important to remember that these amounts, including the total cost for all retailers of $6.8 billion, are not reimbursed to the retailer by the state or local government; these costs come out of the retailer’s own pocket.
The burden on retailers to comply with forty-six different sales tax systems and the monetary cost to retailers for compliance resulted in the two Supreme Court decisions, cited above, that prohibited a state from requiring an out-of-state seller from collecting sales tax on a purchase made by a resident of the state.
Challenge from the New Economy
Today, states face a new threat to sales tax revenue -- electronic commerce-- with the potential to dramatically expand the volume of goods sold to customers without collection of state and local sales or use tax. The combined weight of the inability to collect sales tax on remote sales through traditional carriers and the tax erosion due to electronic commerce threatens the future viability of the sales tax and essential governmental services such as education and public safety.
According to the report: “State and Local Sales Tax Revenue Losses from E-Commerce: Estimates as of July 2004” the Center for Business and Economic Research at the University of Tennessee, for 2006, the estimated combined state and local revenue loss due to remote sales will be between $19.2 billion and $26.5 billion. (The study was conducted at the request of the National Conference of State Legislatures and the National Governors Association.) For electronic commerce sales alone, the estimated revenue loss was between $10.4 billion and $14.0 billion. The report from the University of Tennessee further estimates that the revenue loss will grow and that by 2008, the revenue loss for state and local governments could be as high as $33.6 billion, of which it is estimated that $17.8 billion would be from sales over the Internet. This amount will continue to grow proportionately each year as the amount of business to consumer transactions grows exponentially unless the states and Congress act to simplify and streamline sales tax collection.
Streamlined Sales and Use Tax Collection System
State legislatures have recognized that over the last seventy years, states have created a confusing, administratively burdensome tax system with very little regard for the compliance burden placed on multi-state businesses. In 1999, National Conference of State Legislatures, through the leadership of its Task Force on State and Local Taxation of Telecommunications and Electronic Commerce, acknowledged that states need to simplify their sales and use taxes and telecommunications taxes for the 21st Century.
To respond to the issues raised by the Supreme Court decisions, NCSL endorsed a set of principles to guide the simplification of sales and use tax collections systems. These principles are unique in that for only the second time in the history of the National Conference of State Legislatures, the Conference endorsed a set of actions for states to undertake. Those principles dealing with the sales and use tax collections systems are:
First, that state and local tax systems should treat transactions involving goods and services, including telecommunications and electronic commerce, in a competitively neutral manner; and
Second, that a simplified sales and use tax system that treats all transactions in a competitively neutral manner will strengthen and preserve the sales and use tax as vital state and local revenue sources and preserve state fiscal sovereignty; and
Third, that the Internet and Internet vendors should not receive preferential tax treatment at the expense of local “main street” merchants, nor should such vendors be burdened with special, discriminatory or multiple taxes; and
Fourth, that states recognize the need to undertake significant simplification of state and local sales and use taxes to reduce the administrative burden of collection; and
Fifth, that under such a simplified system remote sellers, without regard to physical presence in the purchaser’s state, should be required to collect sales and use taxes from the purchaser and remit such taxes to the purchaser’s state.
Since September of 1999, state legislators, governors, local elected officials, state tax administrators and representatives of the private sector have worked to develop the Streamlined Sales Tax Collection System for the 21st Century. In 2001-2002, 35 states enacted legislation expressing the intent of the state to simplify the state’s sales and use tax collection system and to participate in multistate discussions to finalize and ratify an interstate agreement to streamline collection of the states’ sales and use taxes. On November 12, 2002, those states unanimously ratified the Streamlined Sales and Use Tax Agreement, which substantially simplifies state and local sales tax systems, removes the burdens to interstate commerce that were of concern to the Supreme Court, and protects state sovereignty. The Streamlined Sales and Use Tax Interstate Agreement provides the states with a blueprint to create a simplified sales and use tax collection system that when implemented, allows justification for Congress to overturn the Bellas Hess and Quill decisions. Presently, all but one of the 45 states and the District of Columbia that levy a sales tax are involved in the process to streamline sales tax collection.
As of July 2008, 22 states representing over 30 percent of the total population of the United States enacted legislation to bring their state’s sales and use tax statutes into compliance with the Agreement. On October 1, 2005, thirteen states with over 20 percent of the population were certified to be fully compliant with the Agreement and the system became operational. The efforts of these states and the other states still considering compliance legislation to erase the complexity and burdens of a 70-year old tax system on transactions so quickly is unprecedented in this nation’s history.
Congressional Action
In less than six years, the states, working together with the support and assistance of the private sector, developed a new sales tax system that was fairer, simpler, more uniform and may be implemented technologically; 22 states, almost half of all the states with a sales tax, enacted legislation to comply with these changes; and, the system is working. It is operational. However, the work to establish a truly seamless system is only half done. It is now Congress’ turn to act.
Therefore, the National Conference of State Legislature calls upon the Congress to grant to those states that comply with the Agreement the authority to require all sellers not meeting the small business exception, regardless of location, to collect those states’ sales and use taxes. Some have argued that businesses that are located in a state that chooses not to comply with the Agreement, or that has no sales tax, should not be subject to collection requirements under the Agreement, even though that seller chooses to sell into a state in which the legislature has decided to comply with the Agreement. However, no seller is forced to sell into states that comply with the Agreement. Out-of-state sellers make that decision and in doing so, they already make themselves liable to the state’s other non-sales taxes statutes and regulations protecting consumers and conducting business. An out-of-state seller selling into a complying state will certainly make use of that state’s legal system to collect unpaid costs from the consumer.
NCSL believes that this grant of authority by Congress to the states to require sales and use tax collection by all sellers not meeting the small business exception is indeed “fiscal relief,” that ensures the viability of the sales tax as a state revenue source. NCSL further believes that Congress, in granting this authority to the states, will level the playing field between sellers and allow all transactions to be treated in a competitively neutral manner.
NCSL will support federal legislation to grant states collection authority that:
- Allows for a national de minimis or small business exception so that sellers with taxable remote sales below an appropriate amount would be exempt from collection requirements for those states in which they do not have nexus;
- Ensures reasonable and adequate compensation for the cost of collection;
- Applies the simplifications and grant of authority to transaction taxes on all
telecommunications services;
- Provides certainty to sellers by allowing an appeal process that includes review of the Agreement Governing Board’s actions by the United States Court of Federal Claims; and,
- Ensures that any filings by sellers in the course of registering, calculating, collecting and/or remitting sales and use taxes collected cannot be used as a criterion for determining nexus for any other tax responsibilities, including state business activity taxes.
Business Activity Tax Reform
In this global economy, with more business being conducted by interstate companies, state legislators acknowledge the concerns raised by taxpayers frustrated with complying with different state business activity tax systems. The complexities of the various state business activity tax regimes coupled with the actions of aggressive state tax departments in enforcing these provisions has led to numerous legal challenges, that have cost state governments and the business sector vital financial resources.
The National Conference of State Legislatures has acknowledged the need to ensure that the tax administration and collection systems for sales taxes and taxes on telecommunications services are more efficient and strives to remove the burden of tax compliance from the taxpayer. NCSL believes that government must address the complexities of the current disparate business activity tax systems in order to reduce the complexities of tax compliance on the taxpayer and to maintain state sovereignty to levy business activity taxes. The National Conference of State Legislatures calls upon state and federal policymakers and taxpayers to enter into discussions that would lead to a fair and equitable tax on the business activity of interstate businesses in the states in which they have a meaningful presence.
Expires August 2011
NCSL Calls Upon the Federal Government to Meet it's Responsibilities to the States
WHEREAS, forty-nine states must maintain balanced budgets to meet constitutional and statutory requirements and to maintain state bond ratings;
WHEREAS, the federal government continues to impose billions of dollars in unfunded mandates and other unreimbursed costs on state governments;
WHEREAS, despite repeated assurances, the federal government continues to fail to meet its commitment to fully fund the Individuals With Disabilities Education Act, the most enduring and egregious unfunded federal mandate facing the states;
WHEREAS, the federal government enacted several billion dollars in new unfunded mandates in the No Child Left Behind Act, the Help America Vote Act and the Real ID Act;
WHEREAS, the federal government has ignored the impact of federal tax legislation on states;
WHEREAS, the federal government has also failed to develop a process by which its obligations to the states can be determined and met;
NOW, THEREFORE, BE IT RESOLVED, that the National Conference of State Legislatures calls upon the federal government to make good on its commitments to fund obligations it has placed upon the states.
BE IT FURTHER RESOLVED that promised federal funding to the states must be among the first priorities and not the last in making decisions on federal spending;
BE IT FURTHER RESOLVED that the National Conference of State Legislatures calls upon the federal government to:
- Preserve successful state-federal partnerships by reauthorizing existing programs such as the State Children’s Health Insurance Program in a manner that maximizes state flexibility without cost shifts to the states;
- Either appropriate immediate and full funding for all newly imposed mandates or delay compliance deadlines until such funds are appropriated;
- Refrain from shifting the cost of national responsibilities, such as providing for homeland security, to the states;
- Prevent unspent funds for the State Children's Health Insurance Program from reverting to the federal treasury;
- Adopt tax strategies for economic stimulus that are revenue-neutral or beneficial for the states, such as an investment tax credit or a payroll tax holiday;
- Provide fiscal assistance for the states, either through additional federal funding or relaxation of mandates and match requirements.
- Avoid all attempts to increase state match rates, reduce program flexibility, or otherwise shift the burden of funding federal obligations and priorities to the states.
- Fully fund the achievement of mandated programs’ objectives not just the programmatic requirements.
Expires August 2010
Payments in Lieu of Taxes Program
(Joint policy with Agriculture and Rural Development Committee)
The National Conference of State Legislatures recognizes the shared responsibility of states, counties and the federal government for the management of public lands. Responsible and efficient land management necessitates a constructive partnership, particularly for those lands administered by the National Forest System. These lands provide benefits in terms of fees, recreational opportunities and environmental diversity to all Americans. At the same time, public lands create substantial costs in terms of infrastructure development and maintenance, much of which is borne by the counties and the states. These costs are particularly problematic for states with a large amount of federal acreage within their borders because federal land cannot be assessed to contribute to the state tax base.
The federal government recognized this problem in 1976 when it created the Payments in Lieu of Taxes (PILT) system, and in 1994 when Congress substantially increased its authorization. The PILT program gives counties a small payment per acre of federal land, which only partially offsets county costs of supporting federal lands in the county. In many cases, payments are inadequate to support the growth of recreation, travel and tourism on federal lands. Inadequate payments have strained some county budgets and undermined the intergovernmental partnership between counties, states and the federal government.
The National Conference of State Legislatures supports federal efforts to:
- reform the PILT program to create a more predictable, fair and flexible system that accurately reflects the fiscal effects of federal lands and state and local governments;
- provide full funding for the PILT program, provided that this goal is accomplished in a manner consistent with a balanced federal budget; and
- provide a more flexible payment system, NCSL supports authorization for the transfer of land of equivalent value from the federal government to counties in lieu of monetary payment, consistent with state statutes and practice. Clearly, such payments would only be appropriate in cases where the federal government, states and counties have been in close consultation and are in agreement on the terms of transfer.
August 2011
State-Federal Partnership To Spur Economic Recovery
The American Recovery and Reinvestment Act (ARRA) has provided our country much needed fiscal relief. While it is still too early to know the true impact of ARRA on the economy, it is important that Congress continues its efforts to adopt policies that encourage job growth and retention, spur investment and recognize and account for the critical link between states and the national economy. To that end, NCSL is supportive of policies adopted by Congress and the administration that:
- Support a collaborative intergovernmental effort to oversee ARRA implementation to determine its effectiveness;
- Affirm the role of state legislatures in their appropriation and oversight of federal funds;
- Avoid unfunded mandates and underfunded national expectations in state-federal partnerships; and
- Spur, not constrain, state investments.
- With NCSL's July 2009 budget survey showing the FY 2009 and FY 2010 state budget gaps at $113 billion and $142 billion, respectively, states will continue to face challenges in maintaining investments in public infrastructure and of meeting the requirements of state-federal programs and the constituents served by them. Even with the assistance provided through ARRA, state fiscal analysts expect the state budget crisis to extend to at least FY 2011, with a projected gap of $58 billion. State lawmakers will continue to take the necessary actions--to adjust spending, raise taxes or both--to balance their budgets, which could have the pro-cyclical effect of deepening and prolonging the downturn.
NCSL urges Congress to adopt policies that provide states additional immediate assistance. This can be accomplished by adopting policies to:
- Provide states temporary discretionary grants similar to those provided in the Jobs and Growth Tax Relief Reconciliation Act of 2003;
- Extend the temporary increase in FMAP to assist people who lose health care coverage during the economic downturn;
- Invest in capital projects that leverage state and private investment;
- Provide states funds for administering ARRA programs;
- Delay implementation dates, provide temporary waivers or reductions of state matching rates and/or suspend program sanctions or permit states to pursue corrective compliance plans;
- Minimize the imposition of state maintenance of effort requirements in existing and future federal fiscal assistance-related legislation; and
- Grant states that have complied with the Streamlined Sales and Use Tax Agreement the authority to require collections of sales tax on remote sales and provide equity for all retailers.
August 2012
State Legislators' Tax Issues
The National Conference of State Legislatures supports the standard deduction allowed state legislators under section 162 (h) of the Internal Revenue Code. Regulation, interpretation, or other statutes should not undermine the section.
Regulations implementing this code section should reflect the intent of Congress and should include the following recommendations:
- A "session day" should mean a day in session as defined by the laws or rules of the state of residence of the legislator.
- A "committee" of the legislature should mean 1) a committee of one or more legislators conducting the business of [or reporting to] the legislature, or 2) a committee created by state or federal statute, resolution, order or rule on which the legislator serves in his or her capacity as a legislator. This definition of "committee" should include caucuses that conduct the business of the legislature.
- "State legislator" should include newly-elected legislators who attend official organizational meetings prior to administration of their oath of office.
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