States and cities could lose billions annually under a congressional bill that would require businesses to have employed at least one employee in a state for 21 days, or have leased or bought property, before having to pay the state's business taxes.

The National Governors Association has opposed the proposed federal legislation, estimating that the cost of the change will total some $6.6 billion. The Congressional Budget Office has released its own statistics saying that the bill will cost local government $1 billion in its first year and as much as $3 billion annually by 2011 as companies reorganize to take advantage of the rules.

The CBO also noted that while all states would lose some money, 10 states -- California, Florida, Illinois, Michigan, New Jersey, New York, Pennsylvania, Tennessee, Texas and Washington -- would bear 70 percent of the losses. Meanwhile, the office estimated that the federal government would still gain $1.2 billion in revenues between 2007 and 2011 because corporations can deduct state taxes from their income for federal tax purposes.

Supporters of the bill say that companies need the federal government to step in and simplify confusing state laws, which can impose taxes on businesses without a physical presence in a state, just for having employees or goods pass through a state for a few days.

Credit card, publishing, and software companies are among those that stand to benefit. Should it pass, states and local governments would be prohibited from collecting franchise taxes, gross receipts taxes and other levies tied to sales in their states.

Previously on WebCPA:

Survey Reports on Cost of Doing Business (July 5, 2006)

State Tax Revenues Rebound (June 29, 2006)

Paper Ranks States' Business-Friendly Tax Codes (Feb. 28, 2006)

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