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For immediate release
Contact: Alisa Harrison, 202-628-8000


Failure to Act Would Harm Communities Nationwide  

WASHINGTON, June 22, 2009—The International Franchise Association today urged Congress to pass the Business Activity Tax Simplification Act of 2009 (BASTA).  IFA made the plea in light of the U.S. Supreme Court’s decision today to decline a request to review a lower court decision that could lead to new taxes on the royalty income paid to the franchisor by franchisees located in different states.

“The decision by the U.S. Supreme Court to push this issue back to the state courts makes action by Congress all the more urgent,” said IFA Vice President of Government Relations David French.  “The Business Activity Tax Simplification Act of 2009 would clarify the constitutional requirement for a physical presence nexus standard governing state assessment of corporate income taxes and comparable taxes on a business.”

IFA joins over 140 other businesses, trade associations and taxpayer groups in support of BASTA because in recent years, some states have argued that the presence of intangible property in their jurisdiction may be subject to state income tax.  In the past, if a franchisor’s relationship to a state was limited to the trade name or brand name that links a franchisor to franchisees, that relationship was insufficient to justify the imposition of taxes on out-of-state franchisors.  However, in recent years states have interpreted this law differently and sought to collect taxes from out-of-state companies.

The U.S. Supreme Court declined to review the decision of the Supreme Judicial Court of Massachusetts in Capital One Bank v. Commissioner of Revenue, which joined a handful of state supreme courts in holding that the states may impose income tax or other business activity taxes on out-of-state corporations that have no physical presence in the state.  The U.S. Supreme Court denial of a petition for certiorari does not mean that the Court agrees with the decision of the lower court.  The Court has limited resources and denies the vast majority of petitions.  

French explained that failure of Congress to clarify the law would harm economic recovery.  An IFA Educational Foundation report shows that the franchise industry consistently outperforms the non-franchised business sector, creating more jobs and economic activity in local communities across the country.  Franchising grew at a faster pace than many other sectors of the economy from 2001 to 2005, expanding by more than 18 percent.  During this time, franchise business output increased 40 percent compared to 26 percent for all businesses, and created 21 million jobs and generated $2.3 trillion in economic activity.

“Imposing new income tax or other business activity taxes on franchise businesses that do not have a physical presence will harm their efforts to create jobs and generate new revenue,” French said.  “Without action by Congress, communities across the country will be impacted by lost jobs and revenue. Congress must act soon.”

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About The International Franchise Association
The International Franchise Association, the world’s oldest and largest organization representing franchising, is the preeminent voice and acknowledged leader for the industry worldwide. Approaching a half-century of service with a growing membership of nearly 1,300 franchise systems, 10,000-plus franchisees and more than 500 firms that supply goods and services to the industry, IFA protects, enhances and promotes franchising by advancing the values of integrity, respect, trust, commitment to excellence, honesty and diversity. For more information, visit the IFA Web site